QUESTIONS  ON  THE 

PRINCIPLES 
OF  ECONOMICS 


LIBRARY 

UNIVERSITY  OF 

CALIFORNIA 

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QUESTIONS   ON   THE   PRINCIPLES 
OF   ECONOMICS 


THE  MACMILLAN  COMPANY 

NEW  YORK   •    BOSTON   •    CHICAGO  •   DALLAS 
ATLANTA  •   SAN   FRANCISCO 

MACMILLAN  &  CO.,  LIMITED 

LONDON  •    BOMBAY  •    CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  LTD. 

TORONTO 


QUESTIONS 

ON  THE  PRINCIPLES  OF 
ECONOMICS 


BY 
EDMUND   EZRA   DAY,    PH.D. 

ASSISTANT  PROFESSOR  OF  ECONOMICS,  HARVARD  UNIVERSITY 
AND 

JOSEPH    STANCLIFFE   DAVIS,    PH.D. 

INSTRUCTOR  IN  ECONOMICS,  HARVARD  UNIVERSITY 


THE   MACMILLAN   COMPANY 
1920 

Ail  rights  rtnrvtd 


COPYRIGHT,  1915, 
BY  THE  MACMILLAN  COMPANY. 


Set  up  and  electrotypcd.     Published  September,  1915. 


Wortooot) 

J.  8.  Gushing  Co.  —  Berwick  &  Smith  Co. 
Norwood,  Mass.,  U.S.A. 


PREFACE 

MASTERY  of  the  principles  of  Economics  demands  more  than 
a  reading  of  text-books  and  supplementary  selections.  It  calls 
for  frequent  and  thoughtful  consideration  of  problems,  concrete 
and  abstract,  by  which  conceptions  may  be  clarified,  truths 
driven  home,  fallacies  laid  bare,  and  powers  of  analysis  and 
discrimination  developed.  To  furnish  material  for  such  disci- 
pline is  the  general  design  of  this  collection  of  questions. 

More  specifically,  such  a  collection  in  the  hands  of  students 
in  an  introductory  course  in  Economics  may  serve  four  main 
purposes : 

(1)  Most  obviously,  the  questions  may  stimulate  the  student's 
interest.     Assigned  in  conjunction  with  portions  of  a  text-book 
or  collateral  reading,  they  may  tempt  the  student  to  relate  for 
himself  the  abstract  analysis  to  concrete  conditions  and  events 
which  he  may  observe,  and  find  for  a  general  argument  its 
everyday,  near-at-hand  applications. 

(2)  Secondly,  such  questions  may  aid  in  giving  the  beginner 
his  points  of  compass  in  a  first  journey  through  a  somewhat 
intricate  subject.     Thus  he  may  more  speedily  acquire  a  sense 
of  direction  and  proportion,  a  true  perspective,  which  is  easily 
missed  in  making  the  usual  swift  reconnaissance  of  the  field 
of  Economics. 

(3)  In  the  third  place,  the  questions  may  serve  to  prepare  the 
way  for  more  pointed  and  effective  classroom  discussion.     By 
making  the  student's  thinking  less  extemporaneous  and  hap- 
hazard, they  may  strengthen  and  deepen  the  analysis  of  more 
difficult  points,  and  furnish  a  helpful   plan  for  ordering  and 
mastering  the  significant  details  of  the  simpler  material.     The 
authors  believe  this  can  be  done  without  emasculating  the  test 


*i  PREFACE 

of  oral  or  written  quizzes,  and  without  weakening  the  student 
by  furnishing  unnecessary  props. 

(4)  Finally,  by  suggesting  possible  differences  of  opinion,  the 
problems  may  arouse  a  questioning,  combative  mental  attitude 
which  conduces  to  independent  thinking  —  an  exercise  whose 
satisfactions  few  sophomores  appreciate ;  and  by  implying  the 
shallowness  or  fallaciousness  of  certain  commonly  accepted 
catchwords  or  doctrines,  they  may  promote  an  invaluable  alert- 
ness of  mind  and  encourage  the  student  to  lay  a  few  bricks  in 
a  new  intellectual  structure  of  his  own. 

The  book  is  arranged  particularly  for  use  with  Professor 
Taussig's  "Principles  of  Economics"  (revised  edition,  1915). 
Accordingly,  the  questions  cover  the  general  range  of  subject 
matter  and  are  arranged  and  numbered  in  the  sequence  of  that 
work,  —  e.g.,  question  27.  2  is  the  second  question  on  Chapter 
27.  Similar  collections  already  published  contain  a  vast  amount 
of  excellent  problem  material,  but  this  is  in  a  form  difficult  for 
the  ordinary  student  to  use  in  connection  with  a  text-book  built 
on  a  different  plan.  To  be  most  effective  as  a  teaching  device 
and  as  an  aid  to  study,  such  a  collection  needs  to  be  thoroughly 
accessible  and  easy  to  use.  It  is  therefore  expected  that  this 
book  will  be  serviceable  chiefly  in  the  hands  of  students  who 
are  using  Taussig's  "  Principles  "  as  a  text-book,  and  who  will 
go  through  the  questions  chapter  by  chapter  as  they  read  the 
text.  At  the  same  time,  the  use  of  the  questions  with  other 
text-books  is  not  precluded,  inasmuch  as  they  are  grouped  under 
more  or  less  traditional  topics  and  are  not  commonly  couched 
in  phraseology  peculiar  to  Taussig.  Furthermore,  many  of  the 
questions  are  far  from  being  simple  and  elementary,  and  may 
profitably  be  considered  by  more  advanced  students,  especially 
by  those  who  have  not  had  the  advantage  of  a  thorough  in- 
troductory course.  Indeed,  in  using  the  book  in  elementary 
courses,  instructors  will  ordinarily  find  it  advisable  to  "  star  " 
for  omission  certain  questions  on  nearly  every  chapter,  in  order 
to  limit  the  student's  burden  to  "  what  the  traffic  will  bear." 
The  authors  have  refrained  from  making  this  selection  in  ad- 


PREFACE  vff 

vance,  believing  that  it  may  best  be  done  with  special  reference 
to  local  needs. 

A  few  of  the  questions  here  presented  are  frankly  borrowed 
from  previously  published  collections ;  and  in  such  cases,  except 
where  the  appropriation  has  been  unconscious  or  accidental, 
credit  has  been  given  by  appropriate  initials.  Acknowledgments 
are  here  made  for  adaptations  or  quotations  of  questions  from 
F.  A.  Fetter's  "Principles  of  Economics"  (Fet);  I.  Fisher's 
"  Suggested  Problems  for  Teachers  "  (F.) ;  S.  Newcomb's  "  Prin- 
ciples of  Political  Economy  "  (N.) ;  W.  G.  Sumner's  "  Problems 
of  Political  Economy  "  (S.) ;  F.  M.  Taylor's  "  Principles  of  Eco- 
nomics "  (T.) ;  and  the  University  of  Chicago  "  Outlines  of 
Economics"  (O.).  More  of  the  questions  have  been  drawn 
from  a  stock  accumulated  through  several  years  in  the  hands 
of  the  instructing  staff  of  the  introductory  course  in  Economics 
at  Harvard  University.  Most  of  the  question  material,  however, 
has  been  drafted  by  the  authors  during  the  past  year  with  the 
specific  purpose  of  the  present  book  in  mind.  Even  for  this 
part  no  thoroughgoing  originality  can  be  claimed,  so  pervasive 
is  the  influence  of  the  thoughts  and  phrases  of  others.  But  it 
is  hoped  that  sufficient  freshness  of  form  and  substance  may  be 
observable  to  justify  the  pretension  of  authorship. 


CAMBRIDGE,  MASS., 
August  7, 1915. 


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QUESTIONS   ON    THE   PRINCIPLES 
OF   ECONOMICS 


WEALTH  AND  LABOR 

1.  1.  Which  of  the  following  are  economic  goods :  a  Victor 
record;  the  moon;  opium;  the  sunken  Titanic;  an  athletic 
field;  New  York  harbor;  Caruso's  voice;  a  five-dollar  gold 
piece;  a  five-dollar  bill;  a  mortgage;  the  registered  trade 
name  "Uneeda";  electricity;  a  primeval  forest;  a  band 
concert;  a  glass  eye;  eyesight;  weeds;  land  at  the  South 
Pole;  friendship;  labor? 

Define  "economic  goods." 

1.  2.  Which  of  the  following  are  public  goods:  Hudson 
River ;  the  Panama  Canal ;  Yellowstone  Park ;  a  city  water 
system ;  lakes  stocked  by  the  government  with  fish ;  a  harbor 
improved  at  government  expense;  a  warship;  the  Weather 
Bureau  service;  a  fire  department;  the  University  Museum? 

Define  "public  goods." 

1.  3.  May  a  thing  be  wealth  (a)  to  one  person  and  not 
to  another?  (6)  at  one  place  and  not  at  another?  (c)  at  one 
time  and  not  at  another?  Illustrate. 

1.  4.  "Nothing  can  be  wealth  unless  the  total  supply  is 
so  narrowly  limited  that  every  part  of  it  is  necessary  to  satisfy 
existing  wants." 

Can  you  think  of  any  exceptions?  How,  if  at  all,  should 
you  restate  the  point  ? 

1.  5.  Did  the  Emancipation  Proclamation  diminish  the 
amount  of  wealth  in  the  Southern  States? 


2         QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

1.  6.  "Labor  employed  in  the  productive  work  of  in- 
dustry is  usually  excluded  from  the  category  of  national 
'wealth.'  ....  But  there  is  no  sufficient  reason  for  iCS  ex- 
clusion. Any  increase  of  the  efficiency  of  labor  of  a  nation 
is  evidently  as  much  an  increase  of  its  total  vendible  resources 
as  an  increase  in  its  instrumental  capital  would  be." 

Do  you  agree  ? 

1.  7.  Most  goods  after  being  sold  to  consumers  can  be 
resold  only  at  a  lower  price;  they  are  "second  hand."  Does 
the  fall  in  selling  value  indicate  a  decline  m  the  wealth  of  the 
community  ? 

1.  8.  "The  more  things  in  the  nature  of  wealth  a  com- 
munity has,  the  less  prosperous  it  is."  Do  you  agree?  Why 
or  why  not  ? 

1.  9.  Which  of  the  following  are  labor :  exercise  to  reduce 
one's  weight ;  golf-playing ;  coaching  a  football  team ;  serving 
as  a  bank  director;  serving  on  an  unpaid  government  com- 
mission ;  painting  for  love  of  the  art ;  military  service  ? 

Define  "labor." 

1.  10.  Is  the  irksomeness  of  labor  inevitable?  How,  if  at 
all,  may  it  be  minunized  ? 


PRODUCTIVE  AND  UNPRODUCTIVE  LABOR 

2.  1.  "Insurance  is  not  production."  Do  you  agree?  If 
not,  what  product  does  an  insurance  company  produce?  a 
railroad  company? 

2.  2.  Can  there  be  production  without  the  application  of 
labor?  Cite  instances,  if  possible.  Define  "production." 

2.  3.  Are  the  following  productive  laborers :  a  contractor 
razing  a  building;  a  ticket  speculator;  a  policeman  on  duty 
at  an  amateur  baseball  game;  a  grocer;  a  commission  mer- 
chant; a  bar-tender;  a  professor  of  fine  arts;  an  examina- 
tion proctor;  a  bond  salesman;  a  publisher  of  sensational 
falsehoods ;  an  agitator  for  Socialism ;  the  admiral  of  a  battle- 
ship fleet ;  the  warden  of  a  prison ;  a  lawyer  who  successfully 
defends  a  guilty  person ;  a  smuggler  of  diamonds ;  a  smuggler 
of  Chinese  coolies;  a  politician  campaigning  for  high  office; 
the  writer  of  an  advertisement  for  a  harmless  patent  medicine  ? 

Define  "productive  labor." 

2.  4.  When  a  millionaire  purchases  an  up-to-date  factory 
building  which  stands  opposite  his  house  and  razes  it  in  order 
to  improve  his  view,  is  his  action  productive? 

2.  5.  "Some  years  ago  a  paper  manufacturer  near  New 
Haven  was  offered  a  round  sum  if  he  would  close  his  mill. 
This  he  did,  to  the  benefit  of  both  himself  and  his  former  rivals." 
Was  his  action  productive  ? 

2.  6.  "Economic  productivity  is  not  a  matter  of  piety  or 
merit  or  deserving,  but  only  of  commanding  a  price.  .  .  . 
The  test  of  economic  productivity  in  a  competitive  society  is 
the  fact  of  present  gain,  irrespective  of  any  ethical  criteria." 

Do  you  agree? 

2.  7.  Is  all . productive  labor  honorable?  legal?  Is  all 
unproductive  labor  dishonorable?  illegal?  Illustrate  and  give 
reasoning. 

* 


THE    DIVISION    OF    LABOR    AND    THE   DEVELOP- 
MENT OF  MODERN  INDUSTRY 

3.  1.  What  are  the  various  forms  of  the  division  of  labor? 
What  are  the  advantages  of  each  ? 

What  disadvantages  have  resulted  from  the  division  of 
labor?  How,  if  at  all,  may  these  be  reduced  or  eliminated? 

3.  2.  What  was  the  Industrial  Revolution?  When  did  it 
begin?  Is  it  a  thing  of  the  past?  How  has  it  affected  the 
division  of  labor  ? 

3.  3.  Would  the  Industrial  Revolution  have  taken  place 
if  transportation  facilities  had  remained  unimproved?  In 
what  way  were  improvements  in  transportation  stimulated  by 
developments  in  the  industrial  arts? 

3.  4.  Division  of  labor  has  been  described  as  "  unconscious 
cooperation"  and  as  "specialization."  Are  these  descriptions 
accurate  ?  Which  seems  to  you  preferable  ? 

3.  5.  Should  you  expect  a  high  development  of  the  division 
of  labor  in  (a)  truck  farming  ?  (b)  the  manufacture  of  jewelry  ? 
(c)  automobile  repairing  ?  (d)  carpentering  ?  (e)  interior  deco- 
rating? In  each  case  give  reasons. 

3.  6.  "The  division  of  labor  is  limited  by  the  extent  of 
the  market."  Explain  with  reference  both  to  the  geographical 
division  of  labor  and  to  the  division  of  labor  among  individuals. 

What  other  factors  may  limit  the  division  of  labor  in  any 
industry  ? 

3.  7.  What  sorts  of  gain  result  from  the  geographical  divi- 
sion of  labor?  Are  there  analogous  gains  in  the  division  of 
labor  among  individuals? 


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LARGE-SCALE  PRODUCTION 

4.  1.  Which  advantages  of,  and  which  limitations  upon 
large-scale  production  appear  most  prominently  hi  (a)  the 
iron  and  steel  manufacture?  (b)  retail  trading?  (c)  dairy  farm- 
ing? (d)  job  printing?  (e)  watch  manufacturing? 

4.  2.  How  do  you  account  for  the  appearance  of  widely 
different  scales  of  production  (a)  in  different  industries? 
(b)  within  a  single  industry?  Give  examples. 

4.  3.  What  are  the  limitations  upon  large-scale  production 
in  agriculture  ?  in  manufacturing  ? 

Should  you  expect  the  scale  of  manufacture  to  be  affected 
by  a  large  increase  of  graduates  from  schools  of  business  ad- 
ministration ?  Should  you  expect  the  scale  of  agriculture  to 
be  affected  by  a  large  increase  of  graduates  from  agricultural 
colleges?  Jt&fo+*+4t^ 

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(a)  §£0pioyers ?  (b)  laborers?^)  consumers ?  (d)  society  at  large? 

4.  5.  What  are  the  two  forms  of  large  scale  management? 
Illustrate  each.  What  forces  tend  permanently  to  establish 
each  form? 

4.  6.  Give  three  possible  advantages  of  combination  as 
distinct  from  large-scale  production.  Does  large-scale  man- 
agement necessarily  involve  large-scale  production? 

4.  7.  Do  both  horizontal  and  vertical  combinations  appear 
in  the  restaurant  business  in  this  vicinity?  What  forces  pro- 
mote combination  in  this  business?  Why  is  competition  able 
to  persist? 

4.  8.  What  motives  lead  most  strongly  to  horizontal  com- 
bination? to  vertical  combination? 

To  which  form  of  combination  is  the  tendency  the  stronger  ? 
Why? 

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5.  1.  Are  the  following  capital:  a  dog;  a  wheat  field; 
flour  ;  a  workman's  lunch  ;  a  jail;  a  fountain  pen;  a  rail- 
road  bond;  a  railroad  ticket;  an  opera  singer's  talent;  coal 
in  a  locomotive  tender  ;  a  five-dollar  gold  piece  ;  a  street  rail- 
way franchise  ;  business  goodwill  ;  a  college  dormitory  ? 

5.  2.     "The  difference  between  producer's  and  consumer 
goods  is  at  bottom  only  a  difference  of  degree."    Explain. 
What  is  the  essential  difference  between  them?    What  two- 
fold relation  does  capital  bear  to  consumer's  wealth  ? 

5.  3.  "The  distinction  .  .  .  between  Capital  and  Not- 
Capital,  does  not  lie  in  the  kind  of  commodities,  but  in  the 
mind  of  the  capitalist  —  in  his  will  to  employ  them  for  one 
purpose  rather  than  another.  .  .  ." 

Do  you  agree  ? 

5.  4.  "Is  it  your  opinion  that  the  knowledge  and  skill  in 
production  which  a  man  may  acquire  by  long  practice  and 
study  should  be  regarded  as  part  of  his  capital?  Compare 
the  cases  of  two  men,  one  of  whom  has  saved  his  wages  to  be 
invested  in  bonds,  while  the  other  has  employed  his  in  educating 
himself  so  as  to  command  higher  wages."  (N.) 

5.  5.  Draw  up  a  list  of  the  important  forms  which  capital 
takes. 


5.  G.  What  is  meant)  by  "  saving  "  ?  Is  capital  ever  formed 
without  saving?  Does  all  saving  result  in  the  formation  of 
capital  ?  Does  all  investment  ?  If  possible,  give  examples. 

5.  7.  "The  savings  of  the  people  of  the  United  States  are 
nearly  a  billion  dollars  a  year.  What  and  where  are  they?" 
(Fet.) 

5.  8.  "It  is  ...  the  genesis  oj  new  capital  that  requires 
abstinence.  The  maintenance  of  it,  the  mere  renewal  of  the 


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10      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

wasting  tissue  of  it,  does  not.  .  .  .  The  keeping  up  of  the 
series  of  capital  goods  is,  hi  a  sense,  automatic.  The  mill,  the 
ship,  etc.,  virtually  replace  themselves  as  they  are  worn  out." 

Do  you  agree  ? 

5.  9.  "Through  long  periods  of  saving  the  capital  in  the 
community  has  been  so  greatly  increased  that  there  is  no  longer 
any  need  for  individual  saving.  .  .  .  Hence,  the  hard-fisted 
man  is  not  in  demand,  but  rather  the  man  who  will  consume 
and  enjoy.  It  is  no  longer  necessary  that  a  man  abstain  hi 
order  to  save.  The  modern  community  as  a  cooperative  group 
is  producing  enough  for  all." 

Do  you  agree  ? 

5.  10.    To  what  extent  and  in  what  manner  do  the  follow- 
ing contribute  to  the  formation  of  capital :   a  miser ;   a  postal 
savings  bank ;   a  life  insurance  company ;  government  borrow^ 

"ing;  a  manual  training  school  teacher^  a  college  prof  essor  ? 

6.  11.     What  obstacles  hindered  the  creation  of  capital  in 
primitive  times  ?    What  obstacles  to-day  impede  the  growth  of 
capital  hi  Mexico  ?  in  the  United  States  ? 

6.  12.  "Capital  is  produced."  "Capital  is  saved."  Can 
these  two  statements  be  harmonized  ? 

5.  13.     Why   should  wages  paid   to  subway  laborers  be 
called  "advances"?    Are  all  wages  "advances"  hi  the  same 
sense  ?     "^j^ 

6.  14.  0  Capital  has  been  variously  characterized  by  econo- 
mists as  (a)  "  inchoate  wealth ";  (b)  "  congealed  labor  ";  (c)  "in- 
termediate  goods "  ;     (d)    "produced   means   of  production"  ; 
(e)  "future  goods."    In  what  sense  is  each  an  apt  description ? 
Which  is  preferable  ? 

5.  15.  What  distinction  has  been  drawn  (a)  between 
"capital  to  the  individual"  and  "capital  to  the  community"? 
(b)  between  "capital"  and  "capital  goods"? 

5.  16.  In  what  terms  may  the  quantity  of  capital  be 
measured  ? 


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THE    CORPORATE    ORGANIZATION    OF    INDUSTRY 

6.  1.  Should  you  expect  corporations  or  partnerships  to 
be  the  more  common  in  (a)  retailing  bonds?  (6)  truck  farm- 
ing? (c)  gold  mining?  (d)  the  manufacture  of  explosives? 
(e)  automobile  repairing?  (/)  preparatory  school  education? 
(g)  ship  building?  (H)  aerial  navigation?  (i)  insurance? 

6.  2.  A  corporation,  formed  with  capital  stock  of  $10,000, 
is  forced  to  dissolve.  Its  outstanding  debts  are  $15,000.  How 
much  will  be  lost  (a)  by  the  creditors,  (b)  by  the  stockholders, 
if  the  assets  yield  $10,000?  $15,000?  $20,000?  $30,000? 

6.  3.  Enumerate  the  distinctive  characteristics  of  the  cor- 
poration. Which  seem  to  you  most  important  and  why  ? 

6.  4.  Do  you  see  any  causal  connection  between  the  great 
increase  of  corporations  and  the  Industrial  Revolution  in  its 
later  stages? 

6.  5.  In  what  respects  is  the  wide  extension  of  the  cor- 
porate organization  of  industry  advantageous,  in  what  respects 
disadvantageous,  for  (a)  the  business  man?  (b)  the  investor? 
(c)  the  community  at  large  ? 

6.  6.  Should  you  favor  a  tax,  at  the  rate  of  1  per  cent  of 
the  market  value,  on  all  transfers  of  corporation  securities  ? 

6.  7.  Who  are  the  financial  middlemen  of  this  vicinity? 
of  New  York  City  ?  What  part  do  they  play  (a)  in  the  forma- 
tion of  capital  ?  (b)  in  the  management  of  corporations  ? 

6.  8.  How  has  the  corporate  organization  of  industry 
made  (a)  savings  more  "liquid"?  (b)  financial  middlemen 
more  powerful?  (c)  the  leisure  class  more  permanent? 


SOME   CAUSES   AFFECTING   PRODUCTIVENESS 

7.  1.  "In  the  building  of  a  new  town  in  Maine  it  was 
found  to  be  economical  to  spend  considerable  sums  of  money 
for  supplying  food  for  the  men  at  less  than  cost,  rather  than 
to  have  them  eat  the  food  provided  by  the  local  boarding- 
houses." 

Explain. 

7.  2.  Under  what  conditions  would  an  increase  of  wages 
cause  a  prompt  increase  in  the  efficiency  of  the  wage  earners? 
Assuming  an  increase  of  efficiency  possible  by  such  means, 
should  you  expect  employers  to  raise  the  wages  ? 

7.  3.  "The  curse  of  the  poor  is  their  poverty."  What 
are  the  economic  grounds  for  this  statement? 

7.  4.  What  should  you  consider  the  "necessaries  for  effi- 
~ciency"  for  a  pick-and-shovel  worker?  a  bookkeeper?  a  motor- 
man?  an  artist?  a  foundry  hand?  the  president  of  a  large  rail- 
road company  ? 

7.  5.  Is  it  desirable  that  wages  should  always  be  sufficient 
to  provide  the  "necessaries  for  efficiency"?  no  more  than 
sufficient? 

7.  6.  In  what  way  is  the  productiveness  of  labor  affected 
by  (a)  a  wide  diffusion  of  elementary  education?  (b)  extensive 
opportunities  for  technical  education  ?  (c)  extensive  facilities  for 
higher  education? 

7.  7.  Under  what  conditions,  if  any,  might  an  effective 
increase  in  educational  facilities  lower  wages  (a)  for  certain 
individuals?  (6)  in  general? 

7.^8.  "The  business  men  sit  by  and  merely  levy  toll." 
Criticize.  '  i&^»  ~  *- L~^U^~1  • 

7.  9.  How  is  industrial  leadership  affected  by  (a)  the 

13 


14      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

diffusion  of  education?  (b)  freedom  of  opportunity?  (c)  in- 
equality of  possessions?  (d)  immaterial  rewards? 

7.  10.  Concisely  describe  the  economically  important  ele- 
ments in  the  immaterial  equipment  of  the  United  States.  What 
is  essential  to  the  maintenance  of  this  equipment  ?  its  increase  ? 


EXCHANGE,  VALUE,  PRICE 

8.  1.  "Internal  commerce  does  not  increase  the  wealth 
of  a  nation  since  it  only  transfers  goods  from  one  person  to 
another."  (T.)  Do  you  agree? 

8.  2.  In  what  sense  is  the  term  "  value  "  used  in  the  fol- 
lowing statements? 

(a)  "Whisky  is  of  no  permanent  value  to  society." 

(b)  "We  offer  the  biggest  values  in  the  city." 

(c)  "The  book  cost  me   two  dollars,  but  that  does  not 
measure  its  value." 

(d)  "The    floods    caused    a    tremendous    destruction    of 
values." 

(e)  "The  value  of   a    silver    dollar  is  really  only  forty 
cents." 

(/)  "Prices  of  railway  and  industrial  stocks  may  still  be 
below  values." 

8.  3.  "Any  commodity  in  general  use  will  serve  passably 
as  a  medium  of  exchange."  Can  you  think  of  any  commodi- 
ties now  in  general  use  in  this  community  of  which  the  state- 
ment is  not  true  ? 

What  commodities  other  than  gold  and  silver  might  serve 
satisfactorily  as  mediums  of  exchange  ? 

8.  4.  How  should  you  determine  the  value  of  an  ounce  of 
gold?  your  overcoat?  a  railroad  terminal?  a  court  house?  a 
college  stadium?  a  book  prized  for  sentimental  reasons? 

8.  5.  A  general  rise  in  prices  takes  place.  What  does 
this  indicate  as  to  (a)  the  price  of  potatoes?  (6)  the  value  of 
money?  (c)  a  general  rise  in  values? 


1 6      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 
8.  6.    Suppose  the  following  course  of  prices : 


1873 

1895 

IQI2 

Silver  per  ounce      

Si.  30 

$0.65 

$061 

Wheat  per  bushel    

1.  32 

.67 

I.IO 

Relative  height  of  prices  in  general    .     .     . 

IOO 

60 

85 

What  changes,  if  any,  would  be  indicated  in  the  values  of  silver 
and  wheat  (a)  from  1873  to  1895?  (b)  from  1895  to  1912? 


-t/     ^  J^ 

*  (4i+s/m+*«'+*  #*^f 


VALUE  AND  UTILITY 

9.  1.  Can  you  think  of  anything  possessing  value  but  not 
utility?  utility  but  not  value?  both  utility  and  value  but  having 
no  price  ? 

9.  2.  If  the  supply  of  an  article  is  increased,  how  is  the 
value  per  unit  ordinarily  affected?  Why?  Does  the  value 
of  the  total  stock  rise  or  fall  ?  Why  ? 

9.  3.  Granted  that  more  satisfaction  is  often  derived  from 
the  second  hearing  of  an  opera  than  from  the  first,  and  from 
the  fifth  olive  than  from  the  first,  are  these  cases  exceptions 
to  the  tendency  to  diminishing  utility? 

State  the  law  of  diminishing  utility. 

9.  4.  List  some  goods  in  respect  to  which  the  point  of 
satiety  tends  to  be  reached  most  rapidly  (a)  in  your  own  case ; 
(6)  in  the  case  of  society  at  large. 

Define  "point  of  satiety." 

9.  5.  Of  what  is  "consumers'  surplus"  a  surplus?  Is  it 
shared  equally  by  all  consumers? 

Under  what  circumstances  should  you  expect  a  large  con- 
sumers' surplus  ?  a  small  ? 

What  difficulties  are  encountered  in  its  measurement? 

9.  6.  What  different  meanings  may  be  attached  to  the 
phrase  "the  income  of  a  community"?  Is  all  "income"  of 
economic  significance? 

9.  7.  If  all  men  possessed  equal  property  and  equal  income, 
(a)  would  changes  in  the  supply  of  a  commodity  affect  its  price 
less  or  more  than  at  present?  (£)  would  the  marginal  utility  of 
money  be  the  same  to  all?  (c)  would  all  men  enjoy  the  same 
consumers'  surplus  for  each  commodity?  (d)  would  human 
happiness  be  greater  or  less? 

c  17 


MARKET  VALUE.    DEMAND  AND  SUPPLY 

10.  1.  In  what  sense  is  the  term  "market"  used  in  the 
following  statements? 

(a)  "The  division  of  labor  is  limited  by  the  extent  of  the 
market." 

(b)  "I  am  going  to  market." 

(c)  "We  should  build  up  our  South  American  market." 

(d)  "There  was  no  market  for  apples." 

(e)  "There  is  a  world  market  for  cotton." 
Define  "market." 

10.  2.  What  two  interpretations  may  be  given  the  state- 
ment, "The  demand  for  gasoline  has  greatly  increased"? 
Which  interpretation  is  employed  in  this  chapter? 

Define  "demand." 

10.  3.  The  demand  for  such  goods  as  building  lots,  paper, 
salt,  and  unskilled  labor  is  sometimes  called  a  "composite 
demand."  Why?  Give  other  examples. 

10.  4.  The  demand  for  such  goods  as  plows,  agricultural 
land,  motor  trucks,  and  copper  is  sometimes  called  a  "derived 
demand."  Why?  Give  other  examples. 

10.  5.  Should  you  expect  the  demand  for  the  following  to 
be  elastic  or  inelastic:  diamonds;  salt;  pepper;  hair  cuts; 
ink ;  tennis  balls ;  playing  cards ;  automobiles  ? 

Define  (a)  "an  elastic  demand" ;  (b)  "elasticity  of  demand." 

10.  6.  Should  you  expect  the  demand  for  a  commodity 
to  be  elastic  or  inelastic  (a)  if  there  are  many  available  substi- 
tutes for  it  ?  (6)  if  there  are  many  possible  uses  for  it  ?  (c)  if  its 
price  places  it  beyond  the  reach  of  the  masses  ?  (d)  if  the  desire 
for  it  is  nearly  satiated?  (e)  if  the  desire  for  exactly  this  com- 
modity is  deeply  ingrained? 

10.  7.  "Are  supply  and  stock  on  hand  the  same?"  (O.) 

19 


20      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 


Does  the  supply  of  a  commodity  include  what  is  possessed  by 
consumers?  May  the  supply  of  a  commodity  exceed  the  en- 
tire quantity  in  existence? 

Define  "supply." 

10.  8.  Would  doubling  the  supply  of  all  commodities 
affect  exchange  values?  (Fet.) 

10.  9.  "I  am  yet  unable  to  understand  how  it  happens, 
with  our  export  of  flour  stopped,  that  the  price  to  local  con- 
sumers is  still  going  up."  (From  a  speech  made  soon  after 
the  outbreak  of  the  European  war.)  What  explanations  can 
you  suggest  ? 

10.  10.    What  is  meant  by  the  following  statements? 

(a)  "Value  is  determined  by  marginal  utility." 

(6)  "Value  is  determined  by  the  equilibrium  of  demand 
and  supply." 

Are  the  statements  consistent  ? 

10.  11.  Indicate  the  order  in  which  the  following  demand 
schedules  stand  with  respect  to  elasticity  of  demand.  Plot 
demand  curves  corresponding  to  the  schedules. 


ASSUMED  PRICES 

NUMBER  OF  UNITS  THAT  WOULD  BE  TAKEN 

Of  a 

Of  b 

Of  c 

25* 

IOO 

400 

50 

20 

IS 

200 
300 

500 
600 

IOO 
2OO 

12 
IO 

8 
6 
5 

400 

450 
600 
800 
1,200 

700 
800 
900 

1,000 
I,2OO 

4OO 
800 
1,  600 
2,500 
3,600 

4 

2,OOO 

1,250 

5,000 

3 

3,ooo 

1,300 

10,000 

2 

5,000 

1,350 

20,000 

I 

8,000 

1,400 

40,000 

MARKET  VALUE.     DEMAND  AND  SUPPLY  21 

10.  12.  "If  demand  is  doubled,  the  supply  remaining  the 
same,  the  price  is  doubled;  and  if  the  supply  is  doubled,  the 
demand  remaining  the  same,  the  price  is  reduced  one  half." 
Do  you  agree  ?  Illustrate  by  diagram. 

10.  13.  Why  does  the  demand  curve  usually  descend 
toward  the  right?  Does  it  necessarily  so  descend? 

What  is  indicated  when  the  demand  curve  touches  the 
vertical  axis?  the  horizontal  axis? 

What  is  signified  by  a  sharply  declining  demand  curve? 
an  almost  horizontal  demand  curve  ? 

How  should  you  represent  an  increased  demand?  a  doubled 
demand  ? 

10.  14.  Construct  a  diagram  showing  the  determination  of 
the  market  value  of  first-edition  Shakespeares. 

10.  15.  Distinguish  market  value  and  normal  value. 
Can  you  determine  the  normal  value  by  averaging  market 
values?  Is  there  a  normal  value  for  seasonal  goods;  perish- 
able goods ;  domestic  service ;  a  first  folio  of  Shakespeare  ? 

10.  16.  In  what  ways  is  the  demand  for  capital  goods 
dependent  upon  (a)  "the  utility  of  the  consumable  goods  they 
aid  in  making"?  (b)  general  business  conditions? 

10.  17.  What  forces  tend  to  make  retail  prices  inflexible? 
flexible?  How  far  are  retail  prices  determined  by  marginal 
utility? 

10.  18.    What  is  meant  by  a  "fair  price"? 

10.  19.  Under  what  circumstances  may  utility  to  sellers 
affect  the  price  of  an  article? 


SPECULATION 

11.  1.  What  is  meant  by  "dealing  in  futures"?  How  does 
it  tend  to  affect  (a)  the  price  of  wheat  for  the  farmer?  (b)  the 
profits  of  the  miller?  (c)  the  price  of  flour  to  the  consumer? 

11.  2.  Should  you  expect  the  development  of  cold  storage 
to  mitigate  or  to  aggravate  fluctuations  in  the  prices  of  perish- 
able foodstuffs? 

11.  3.  Why  should  there  be  more  speculation  (a)  in  cotton 
than  in  wool  ?  (b)  in  corn  than  in  rice  (in  the  United  States)  ? 
(c)  in  stocks  than  in  bonds  ?  (d)  in  copper  than  in  steel  ? 

What  conditions  are  most  conducive  to  the  development 
of  organized  speculation  in  any  commodity? 

11.  4.  How  does  organized  speculation  tend  to  affect 
(a)  the  market  value,  (b)  the  normal  value,  of  the  commodities 
concerned  ? 

How  does  it  affect  value  to  the  producer?  value  to  the 
consumer  ? 

11.  5.  "The  more  speculators,  the  better  for  the  legitimate 
dealer."  Why  or  why  not? 

11.  6.  What  is  the  essential  difference  between  the  produc- 
tive and  the  unproductive  speculator?  Give  at  least  two 
reasons  why  the  activity  of  the  latter  is  economically  undesir- 
able. Why  is  it  not  suppressed  ? 

11.  7.  "A  great  point  has  been  made  of  the  fact  that 
prices  have  advanced  so  little  [in  the  wheat  market  since  the 
opening  of  the  war].  ...  It  is  greatly  to  be  hoped  that  the 
Government  will  not  attempt  to  do  more  than  modify  any 
vicious  and  extreme  fluctuations  of  price.  Should  they  do  so 
they  may  very  easily  produce  later  effects  much  worse  than 
those  they  seek  to  avoid." 

In  what  ways  might  the  prevention  of  an  advance  in  price 
be  objectionable  ? 

23 


VALUE  UNDER  CONSTANT  COST 

12.  1.  What  are  the  important  elements  of  cost  in  the 
production  of  (a)  illuminating  gas?  (b)  raw  cotton?  (c)  an- 
thracite coal?  (d)  fine  watches?  (e)  railway  transportation? 
(/)  grand  opera? 

Should  you  include  in  cost  (a)  the  rent  of  the  building  and 
site  occupied?  (b)  interest  on  the  bonds  of  the  producing  cor- 
poration ?  (c)  dividends  on  its  common  stock  ? 

12.  2.  Under  conditions  of  constant  cost  of  production 
is  the  cost  per  unit  the  same  (a)  for  all  producers  at  the  same 
time?  (b)  for  a  single  producer  at  different  times?  (c)  for  all 
parts  of  one  producer's  output  ?  (d)  for  outputs  of  different  size 
at  a  given  time  ? 

12.  3.  Should  you  expect  to  find  production  at  constant 
cost  in  a  business  in  which  (a)  the  output  is  conditioned  by 
fertility  of  soil?  (6)  rapid  improvement  in  methods  of  produc- 
tion is  taking  place  ? 

What  conditions  of  production  are  essential  to  constant 
cost?  Cite  industries  in  which  you  think  these  conditions  are 
approximated. 

12.  4.  How,  if  at  all,  would  the  doubling  of  a  demand  for 
a  commodity  produced  at  constant  cost  affect,  in  the  long  run, 
(a)  its  marginal  utility?  (b)  the  quantity  exchanged?  (c)  its 
value  per  unit?  (d)  the  cost  per  unit?  In  what  respects 
would  the  immediate  effect  be  different? 

Illustrate  by  diagram. 

12.  5.  Two  commodities  produced  at  constant  cost  re- 
quire for  their  production  equal  amounts  of  the  same  raw 
material  and  equal  amounts  of  the  same  grade  of  labor.  Would 
their  market  values  be  the  same  ?  their  normal  values  ? 

12.  6.  What  is  meant  by  "free  competition"?  Draw  up 
a  list  of  obstacles  to  the  play  of  competition. 

as 


VALUE  AND   VARYING  COSTS.    DIMINISHING 
RETURNS 

13.  1.  "Marginal  cost  determines  value."  Explain  "mar- 
ginal cost."  Under  what  conditions,  if  at  all,  is  the  statement 
true? 

When  costs  are  different  for  competing  producers,  whose 
cost  determines  the  normal  value  of  the  product  when  the 
differences  in  cost  are  (a)  temporary?  (6)  permanent? 

13.  2.  "A  market  price  at  which  marginal  cost  and  mar- 
ginal utility  do  not  coincide  cannot  persist."  Explain  and 
illustrate  by  diagram. 

13.  3.  How,  if  at  all,  would  the  doubling  of  the  demand 
for  a  commodity  produced  at  increasing  cost  affect,  in  the 
long  run,  (a)  its  marginal  utility?  (b~)  the  quantity  exchanged? 
(c)  its  value  per  unit  ?  (d)  the  marginal  cost  ?  In  what  respects 
would  the  immediate  effect  be  different? 

Illustrate  by  diagram. 

13.  4.  "Agricultural  land  cannot  yield  increasing  returns 
as  there  is  a  limit  to  its  productivity.  Its  returns  are  hardly 
ever  constant  as  land  becomes  poorer  with  each  succeeding 
crop  and  must  be  fertilized.  On  the  other  hand,  factories 
usually  yield  increasing  returns  due  to  the  invention  of  new 
processes."  This  statement  involves  a  mistaken  notion  of 
increasing,  constant,  and  diminishing  returns.  Point  out  the 
errors. 

13.  5.  "The  price  of  wheat  this  year  (1900)  is  lower  than 
it  was  in  the  year  1800.  This  surely  proves  that,  during  the 
period  indicated,  the  industry  of  wheat  raising  was  subject  to 
the  law  of  increasing  rather  than  that  of  diminishing  returns." 
(T.)  Does  it? 

27 


28      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 
13.  6.    Given: 


VALUE  OF  LABOR  AND  CAPITAL  INVESTED 
PER  PLOT  or  10  ACRES 

TOTAL  YIELD  IN  BUSHELS  PE«  PLOT 

$5 

10 

35 
80 

15 

135 

20 

2OO 

25 

275 

30 

300 

35 

3J5 

40 

320 

At  what  point  does  the  tendency  to  diminishing  returns  appear? 
If  the  price  of  the  product  were  $1  a  bushel,  how  much  labor 
and  capital  could  profitably  be  employed  on  each  acre  ? 

13.  7.  Concretely,  how  should  you  expect  the  tendency 
to  diminishing  returns  to  show  itself  in  (a)  dairying?  (6)  mar- 
ket gardening?  (c)  forestry?  (d)  copper  mining?  (e)  the  manu- 
facture of  locomotives?  (/)  office  buildings? 


VALUE  AND  INCREASING  RETURNS 

14.  1.  "Here  cost  is  supposed  to  be  uniform  but  not  con- 
stant, —  it  becomes  less  per  unit  as  the  number  of  units  in- 
creases." What  conditions  of  cost  of  production  are  here 
described?  Distinguish  the  terms  "uniform"  and  "con- 
stant." Explain  the  statement  and  illustrate  by  diagram. 

14.  2.  "We  have  a  good  example  of  diminishing  costs  and 
increasing  returns  in  the  case  of  the  Edison  Electric  Light  Co., 
which  is  yearly  reducing  the  price  of  its  incandescent  bulbs." 
Do  you  agree  ? 

14.  3.  "While  this  metal  [Tungsten]  is  almost  exclusively 
used  in  electric  lamp  filaments  and  the  supply  controlled  by 
the  General  Electric  Co.,  under  an  increased  demand  price 
would  soon  go  down  to  a  few  dollars  per  pound."  How  might 
this  be? 

14.  4.  "Telephone  officials  agree  that  it  costs  more  and 
not  less  to  serve  a  subscriber  in  a  large  town  than  in  a  small 
one,  even  if  the  number  of  calls  used  is  the  same."  Should 
you  for  this  reason  consider  the  telephone  business  conducted 
under  conditions  of  diminishing  returns?  What  is  the  unit 
for  which  cost  must  be  calculated  in  this  business? 

14.  5.  Explain  "producers'  surplus."  Under  conditions  of 
increasing  returns  is  there  a  producers'  surplus?  Is  there  such 
a  surplus  under  conditions  of  diminishing  returns? 

Illustrate  by  diagram. 

14.  6.  How,  if  at  all,  would  the  doubling  of  the  demand 
for  a  commodity  produced  at  decreasing  cost  affect,  in  the 
long  run,  (a)  its  marginal  utility?  (b)  the  quantity  exchanged? 
(c)  its  value  per  unit  ?  (d)  the  cost  per  unit  ?  In  what  respects 
would  the  immediate  effect  be  different  ? 

Illustrate  by  diagram. 

29 


30      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

14.  7.  Should  you  class  as  "external"  or  "internal"  the 
economies  secured  (a)  by  Milwaukee  brewers  from  the  loca- 
tion of  a  bottle  factory  in  that  city?  (6)  by  a  railroad  system 
through  the  operation  of  a  large  car  repair  shop  ?  (c)  by  a  shoe 
manufacturer  through  the  establishment  of  his  factory  hi 
Lynn?  (d)  by  a  large  chain  of  drug  stores  through  the  control 
of  a  German  chemical  company  ? 

14.  8.  Enumerate  the  causes  of  the  tendency  toward  in- 
creasing returns. 

If  internal  economies  were  attained  indefinitely,  what  would 
be  the  outcome  and  why?  What  factors  generally  prevent 
this  outcome  ? 


MONOPOLY  VALUE 

15.  1.  Are  the  following  monopolists:  (a)  the  owner  of 
a  copyright;  (b)  the  owner  of  the  best  site  on  the  lake  front 
in  Chicago;  (c)  a  corporation  manufacturing  80  per  cent  of 
the  steel  rails  sold  in  a  country;  (d)  a  corporation  purchasing 
80  per  cent  of  the  steel  rails  sold  in  a  country ;  (e)  the  United 
States  post  office ;  (/)  the  sole  possessor  of  the  secret  of  making 
glass  flowers  ? 

Define  "monopoly." 

15.  2.  Can  a  monopolist  sell  all  of  a  given  stock  of  goods 
for  more  than  the  identical  stock  would  bring  under  competi- 
tive conditions?  Why  can  a  monopolist  make  more  profit 
than  competing  producers  ? 

15.  3.  Can  a  monopolist  charge  what  he  pleases  for  his 
product?  What  determines  the  precise  point  at  which  the 
monopoly  price  tends  to  settle? 

15.  4.  Is  the  entire  profit  of  a  monopolist  "monopoly 
profit"?  What  is  monopoly  profit?  How  does  it  differ  from 
"producers'  surplus"?  Illustrate  by  diagram. 

15.  5.  In  what  ways,  if  at  all,  is  monopoly  price  affected 
by  (a)  cost  of  production  per  unit?  (6)  potential  competition? 
(c)  an  elastic  demand  for  the  product?  (d)  the  existence  of 
satisfactory  substitutes  for  the  product?  (e)  hostile  public 
opinion  ? 

15.  6.  "The  Dutch  East  India  Company  used  to  destroy 
part  of  its  spice  crop  to  enhance  its  profits."  What  conditions 
were  essential  to  make  this  policy  a  good  one  for  the  company? 

15.  7.  Suppose  a  monopolized  article  is  produced  under 
conditions  of  constant  cost.  What  price  policy  will  the  monopo- 
list adopt  ii  the  demand  for  the  article  is  (a)  elastic?  (6)  inelastic? 
Illustrate  by  diagram. 

3* 


32       QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 


How,  if  at  all,  will  the  monopolist's  policy  differ  if  he  pro- 
duces under  conditions  of  diminishing  cost?  Illustrate  by 
diagram. 

15.  8.    Given'the7ollowing  conditions  of  demand  and  supply : 


ASSUMED  PRICES 

QUANTITY  DEMANDED 

EXPENSES  or  PRODUCTION 

Iff 

1,000,000  ' 

2 

3 

900,000 
800,000 

4 
5 
6 

7 
8 

700,000 
600,000 

500,000 

400,000 
300,000 

$10,000 
plus 
2ff  per  unit 

9 

200,000 

10 

100,000 

(a)  Draw  up  a  supply  schedule,  (b)  What  price  would  be 
fixed  under  conditions  of  competition?  (c)  What  price  would 
yield  the  maximum  profits  to  a  monopolist? 

Illustrate  by  diagram. 

16.9.  What  is  "dumping"?  What  induces  it ?  To  what 
extent  is  it  dependent  upon  (a)  monopoly  conditions?  (6)  tariff 
barriers? 

16.  10.  What  is  the  effect  of  a  successful  corner  in  wheat 
on  the  price  of  (a)  wheat  to  outside  speculators?  (b)  flour  to 
the  consumer  ? 


JOINT  COST  AND  JOINT  DEMAND 

16.  1.  In  what  respects  do  the  following  illustrate  either 
joint  supply  or  joint  demand :  general  farming ;  book  publish- 
ing ;  ship  building ;  retailing  groceries ;  university  instruction ; 
automobile  manufacture? 

Cite  four  examples  of  joint  demand  not  previously  men- 
tioned. 

16.  2.  What  elements  should  you  consider  in  calculating 
the  cost  of  transporting  by  railway  (a)  a  trainload  of  hogs? 

(b)  a  carload  of  potatoes?  (c)  a  tub  of  butter? 

In  what  respects  would  the  calculation  of  cost  be  simpler 
in  shipments  by  express  companies  ? 

16.  3.  Suppose  an  increase  in  the  demand  for  beef  hides. 
In  what  direction  and  by  what  means  would  this  tend  to  affect 
the  long-run  value  of  (a)  beef  hides?  (6)  the  best  cuts  of  beef? 

(c)  the  poorer  cuts  of  beef?  (d)  mutton?  (e)  bone  fertilizer? 

16.  4.  What  determines  the  value  of  (a)  a  group  of  three 
joint  products?  (b)  the  principal  product  of  the  group?  (c)  the 
by-products? 

How,  if  at  all,  would  extensive  advertising  of  the  by-products 
affect  the  price  of  the  principal  product  (a)  if  competition  pre- 
vail? (b)  if  the  production  be  monopolized? 

16.  5.  Suppose  a,  b,  and  c  are  essential  to  the  production 
of  x,  and  the  demand  for  x  increases.  What  determines  how 
the  prices  of  a,  b,  and  c  individually  will  be  affected  (a)  imme- 
diately? (6)  ultimately? 


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THE  PRECIOUS  METALS.    COINAGE 

17.  1.  Are  the  following  money:  an  individual's  promis- 
sory note ;  an  individual's  bank  check ;  a  bank  loan ;  a  govern- 
ment bond ;  a  postal  money  order ;  postage  stamps;  a  rail- 
road mileage  book;  a  five-dollar  bill  issued  by  the  Southern 
Confederacy ;  an  old  Roman  coin ;  a  bar  of  gold  ? 

Define  "money." 

17.  2.  What  functions  has  money?  To  what  extent  are 
these  well  performed  by  (a)  gold?  (b)  silver?  (c)  copper? 

17.  3.  "Would  it  be  possible  to  have  a  standard  of  value 
which  did  not  serve  as  a  medium  of  exchange?  a  medium  of 
exchange  which  did  not  serve  as  a  standard  of  value?  Can 
you  find  examples  in  the  currency  of  this  country?"  (O.) 

17.  4.  "The  following  were  .  .  .  used  by  the  ancient 
Chinese  as  ...  currency:  (a)  sea  shells;  (£)  tortoise  shells; 
(c)  skins  of  beasts ;  (d)  domestic  animals ;  (e)  pearls  and  precious 
stones ;  (/)  pieces  of  cotton  and  silk  cloth ;  (g)  instruments  of 
daily  use." 

What  qualities  in  each  led  to  its  use  as  money?  In  what 
respects  was  each  defective  ? 

17.  5.  Would  gold  serve  as  well  as  money  (a)  if  it  had  no 
value  apart  from  monetary  use?  (b)  if  it  had  but  one  tenth  of 
its  present  value_? 

Would  gold  have  as  much  value  if  it  did  not  serve  as  money  ? 

17.  6.  Distinguish  "free  coinage"  and  "gratuitous  coin- 
age." 

17.  7.  What  reasons  are  assignable  for  (a)  the  use  of 
alloy  in  coining  ?  (7>)  government  monopoly  of  coinage  ?  (c)  mill- 
ing coins  ?  (d)  exacting  seigniorage  ? 

17.  8.  How  much  above,  and  how  much  below  the  mint 
price  of  gold  may  its  market  price  be  ?  What  conditions  might 

35 


36      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

lead  to  this  variation?  What  forces  would  prevent  wider 
variation  ? 

17.  9.  What  is  a  dollar?  Should  you  say  "a  dollar  bill 
is  a  dollar,"  or  "a  dollar  bill  is  worth  a  dollar"? 

17.  10.  If  half  the  world's  stock  of  money  were  suddenly 
to  disappear,  how  would  the  following  be  affected :  (a)  the  price 
level ;  (b)  the  value  of  gold  watches ;  (c)  the  amount  of  wealth ; 
(d)  general  prosperity  ? 

How  do  you  measure  (a)  the  quantity  of  money?  (b)  the 
amount  of  wealth  ? 

17.  11.  "What  facts  go  to  determine  the  amount  of  money 
which  a  country  needs?"  (S.) 


QUANTITY  OF  MONEY  AND  PRICES 

18.  1.  How,  if  at  all,  is  the  value  of  money  affected  by 
(a)  a  greatly  increased  demand  for  gold  ornaments?  (b)  an 
extension  of  the  division  of  labor?  (c)  lavish  expenditure? 
(d )  an  increased  rapidity  of  circulation  of  goods  ?  (e)  the  growth 
of  mail  order  houses,  e.g.  Sears,  Roebuck  &  Co.?  (/)  a  de- 
creased hoarding  of  specie? 

18.  2.  In  what  ways  should  you  expect  a  general  European 
war  to  affect  the  value  of  money? 

18.  3.  If  the  value  of  money  should  decline  50  per  cent, 
how  would  the  value  of  gold  jewelry  be  affected?  How  would 
its  price  ? 

18.  4.  Has  the  demand  for  silver  increased  in  recent  years? 
Has  the  demand  for  gold?  Has  the  demand  for  money? 

18.  5.  How,  if  at  all,  does  the  drain  of  specie  to  the  East 
affect  the  value  of  money  in  the  Orient?  in  Europe?  How  do 
you  explain  any  differences  observed  ? 

18.  6.  Washington  is  reported  to  have  said,  in  1797,  on 
being  told  of  the  discovery  of  a  silver  mine,  that  "it  would 
give  him  real  uneasiness,  should  any  silver  or  gold  mines  be 
discovered  that  would  tempt  considerable  capital  into  the 
prosecution  of  that  object,  and  that  he  heartily  wished  for 
his  country  that  it  might  contain  no  mines  but  such  as  the 
plow  could  reach,  excepting  only  coal  and  iron." 

Do  economic  considerations  justify  his  view  ? 

18.  7.  "If  ten  times  the  labor  were  given  to  gold  mining 
that  is  now  given,  and  ten  times  the  gold  were  thereby  got, 
the  world  would  not  be  better  off."  Explain.  Is  gold  min- 
ing productive  labor? 

Would  your  answer  be  different  if  gold  were  used  solely 
for  monetary  purposes? 

37 


38      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

18.  8.  "Thoreau  thinks  'tis  immoral  to  dig  gold  in  Cali- 
fornia; immoral  to* leave  creating  value,  and  go  to  augmenting 
the  representative  of  value,  and  so  altering  and  diminishing 
real  value."  (Emerson's  Journal,  1854.)  How  far,  if  at  all, 
should  you  agree  ? 


THE  COST  OF  SPECIE  IN  RELATION  TO  ITS  VALUE 

19.  1.  In  what  particulars  is  the  demand  for  gold  essen- 
tially different  from  the  demand  for  (a)  raw  cotton?  (b)  agri- 
cultural land  ?  (c)  silver  ? 

In  what  particulars  are  the  conditions  of  supply  for  gold 
different  from  those  for  these  same  commodities  ? 

In  what  respects  is  the  relation  of  cost  to  value  different  in 
the  several  cases  ? 

19.  2.  Has  gold  a  normal  value  ?  If  not,  why  not  ?  If  so, 
what  determines  it? 

19.  3.  What  was  the  proportionate  increase  in  the  stock 
of  the  precious  metals  (a)  between  1493  and  1660?  (b)  between 
1850  and  1860?  Was  the  monetary  stock  equally  affected? 
What  changes  in  the  price  level  occurred  in  the  two  periods? 
How  do  you  account  for  the  slighter  effects  in  the  later  period  ? 

19.  4.  Gold  can  to-day  be  profitably  extracted  from  ore 
which  was  discarded  as  waste  in  1850.  Prices  to-day  are  ap- 
proximately 25  per  cent  higher  than  in  1850.  How  do  you 
reconcile  these  facts  ?  Will  a  fall  in  the  value  of  gold  inevitably 
drive  some  mines  out  of  operation? 

19.  5.  By  what  process  does  the  value  of  gold  determine 
what  mine  shall  become  the  marginal  mine  ? 

19.  6.  Suppose  the  discovery  of  a  new  process  which  re- 
duces by  50  per  cent  the  cost  of  taking  gold  from  the  ore.  By 
how  much  and  by  what  process  will  the  value  of  gold  be  af- 
fected? the  extent  of  gold  mining?  Is  your  answer  consistent 
with  Professor  Taussig's  conclusions  ? 


BIMETALLISM 

20.  1.  Does  the  mint  ratio  of  gold  and  silver  remain 
stable  when  (a)  the  market  ratio  fluctuates?  (b)  the  value  of 
the  silver  in  the  silver  dollar  fluctuates?  (c)  the  value  of  gold 
fluctuates  ?  What  determines  the  mint  ratio  ? 

20.  2.  Does  the  government  fix  the  value  of  the  gold  dol- 
lar? the  silver  dollar?  the  nickel? 

In  what  different  ways  may  the  government  influence  the 
value  of  money? 

20.  3.  A  country  freely  coins  a  gold  dollar  containing  20 
grains  of  fine  gold  and  a  silver  dollar  containing  300  grains  of 
fine  silver,  and  coins  on  government  account  subsidiary  silver 
coins  containing  proportionately  one  tenth  less  of  fine  silver. 
What  coins  will  circulate  when  the  market  ratio  of  gold  and 
silver  is  (a)  16  to  1  ?  (b)  15  to  1  ?  (c)  14  to  1  ?  (</)  13  to  1  ?  In 
each  case  which  metal,  if  either,  is  "overvalued"? 

20.  4.  Give  four  historical  examples  of  the  working  of 
Gresham's  law.  State  the  law. 

20.  5.  "Money  is  a  product  of  evolution,  a  result  of  the 
ages.  The  better  has  gradually  crowded  the  poorer  out  of 
existence."  Can  you  reconcile  this  statement  with  Gresham's 
law? 

20.  6.  Why  did  fractional  silver  coins  in  the  United  States 
tend  to  disappear  after  1850?  What  measures  were  taken  in 
consequence  to  regulate  this  part  of  the  subsidiary  coinage? 
Were  all  of  these  measures  necessary?  Under  what  circum- 
stances, if  any,  would  the  difficulty  of  the  fifties  recur? 


BIMETALLISM.    THE    DISPLACEMENT    OF    SILVER 

21.  1.  "The  very  existence  of  the  double  standard  tends 
to  bring  the  relative  values  of  gold  and  silver  toward  the  ratio 
chosen."  Explain,  and  illustrate  from  French  experience. 

21.  2.  In  what  respects  was  the  bimetallist  argument  sup- 
ported by  the  experience  of  France?  the  United  States? 

21.  3.  When  and  why  was  free  coinage  of  silver  abandoned 
by  (a)  France?  (b)  Germany?  (c)  United  States?  (d)  India? 

21.  4.  Is  there  a  fixed  coinage  ratio  for  gold  and  silver  in 
the  United  States?  Is  gold  freely  coined?  is  silver?  Is 
gold  full  legal  tender?  is  silver?  Is  the  monetary  standard 
bimetallic  ? 

Define  "limping  standard"  and  distinguish  it  from  bi- 
metallism. 

21.  5.  What  is  the  market  value  of  the  silver  in  a  silver 
dollar? 

Suppose  the  United  States  adopted  the  policy  of  free  coin- 
age of  silver  at  the  ratio  of  16  to  1.  How  would  this  tend  to 
affect  (a)  the  make-up  of  the  circulating  medium?  (b)  the 
general  price  level?  (c)  the  market  value  of  silver? 

21.  6.  Would  bimetallism  be  more  likely  to  succeed  (a)  if 
the  coinage  ratio  chosen  were  near  the  existing  market  ratio? 
(6)  in  a  country  which  used  much  metal  in  its  coinage?  (c)  if 
adopted  internationally?  (O.) 

21.  7.  Would  universal  bimetallism  conduce  to  a  stable 
market  ratio  between  gold  and  silver?  to  a  stable  price  level? 
For  what  reasons  does  either  seem  desirable  ? 


43 


CHANGES  IN  PRICES 

22.  1.    Wholesale  prices  in  the  United  States  in  1897  and 
1912  were  approximately  as  follows : 


1897 

1912 

Bacon  (per  Ib.)       

$.0"? 

$  -II 

Butter  (per  Ib.)       

.18 

.7Q 

Chairs  (per  doz.)    

3.  SO 

6.00 

Coal  (per  ton)    

4.00 

s.oo 

Corn  (per  bu.)   

.2^ 

.70 

Cotton  (per  Ib.)      

•O7 

.12 

Hosiery  (per  doz.  pairs)  

1.85 

1.85 

Sole  leather  (per  Ib.)  

.20 

•  25 

Wheat  (per  bu.)      

.80 

I.CX 

Woolen  dress  goods  (per  yd.)    

.4.2 

.66 

Assuming  prices  of  1897  as  base  prices,  calculate  index 
numbers  for  1912,  using  (a)  the  simple  arithmetic  mean ;  (b)  the 
median ;  (c)  the  weighted  arithmetic  mean  (supposing  the  rel- 
ative importance  of  the  different  articles  to  be  as  follows: 
foods,  10;  clothing,  4;  house  furnishings,  1 ;  and  fuel,  1). 

What  are  the  special  advantages  of  each  of  these  methods? 

22.  2.  When  prices  are  rising  how  are  the  following  af- 
fected :  debtors ;  farmers ;  factory  operatives ;  manufacturers ; 
owners  of  gold  mines;  bondholders;  stockholders;  interest 
rates  ? 

22.  3.  "There  is  reason  to  expect  .  .  .  that  rising  prices 
during  the  next  generation  will  be  accompanied  by  money 
incomes  rising  still  more."  Why? 

Who  gains  and  who  loses  (a)  by  stationary  incomes  with 
falling  prices?  (b)  by  rising  incomes  with  stationary  prices? 

45 


QUESTIONS  ON,THB  PRINCIPLES  OF  ECONOMICS- 

•*• 


46 


22.  4.    What  is  the  "multiple  standard"?    For  what 
a  standard  ?    What  may  be  said  for  and  against  its  adoption  ? 

22.  5r  "Efising  prices  seem  to  cause  prosperity,  falling 
prices  adversaty."  How  far,  if  at  all,  are  the  real  consequences 
different? 

22.  6.  /"Most  business  men  and  most  financial  writers  of 
the  daily  and  weekly  press  are  unconsciously  inflationists." 
Why  isuiis  to  be  expected? 


(X 


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*f 


GOVERNMENT  PAPER  MONEY 

23.  1.  If  inconvertible  paper  money  is  issued,  what  factors 
affect  its  circulation  ?  its  value  ? 

23.  2.  Is  fiat  money  necessarily  paper  money?  Is  it 
necessarily  inconvertible?  Is  all  inconvertible  money  fiat 
money? 

23.  3.  What  constitutes  "over-issue"  in  the  case  of  fiat 
money?  Cite  historical  instances  of  fiat  money  in  which 
over-issue  (a)  has  occurred,  (6)  has  been  avoided. 

23.  4.  "The  specie  premium  does  not  measure  real  de- 
preciation with  accuracy."  Explain  "specie  premium,"  "real 
depreciation,"  and  the  statement. 

23.  5.  What  are  the  essential  differences  between  the 
two  sorts  of  convertible  government  paper  money?  In  what 
respect  is  the  use  of  either  (a)  advantageous?  (b)  dangerous? 

23.  6.  How  far,  if  at  all,  may  depreciation  take  place  with 
(a)  inconvertible  paper  money?  (b)  "inconvertible  specie"? 
(c)  convertible  paper  money? 

23.  7.  What  kinds  of  money  circulated  in  the  United  States 
in  1800  ?  1840  ?  1860  ?  1870  ?  1880  ?  1895  ?  Explain  any  changes 
noted. 

23.  8.  What  different  forms  of  currency  are  now  in  cir- 
culation in  the  United  States?  What  practices  insure  their 
circulation  at  parity  ? 

23.  9.  Outline  (giving  dates  for  the  principal  events)  the 
monetary  history  of  the  United  States. 


BANKING  AND  THE  MEDIUM  OF  EXCHANGE 

24.  1.  Distinguish  between  investment  banking  and  com- 
mercial banking.  By  whom  is  investment  banking  conducted 
in  the  United  States?  Are  the  two  necessarily  conducted  by 
separate  institutions? 

24.  2.  "A  savings  bank  accepts  deposits."  "During  the 
panic  of  1907,  deposits  in  safety  vaults  greatly  increased." 
"The  deposits  of  the  First  National  Bank  exceed  $10,000,000." 
Of  what  should  you  expect  the  "deposits"  to  consist  in  each 
case? 

24.  3.  How  does  a  bank  "issue"  notes?  By  whom  and 
why  are  they  returned? 

24.  4.  What  expenses  are  involved  in  the  issue  of  bank 
notes  ?  How  is  revenue  secured  from  such  issue  ? 

24.  5.  What  is  a  promissory  note?  Describe  the  process 
of  its  discount  at  a  commercial  bank.  In  what  different  forms 
may  the  proceeds  be  taken  ? 

24.  6.  In  what  two  forms  may  a  commercial  bank  lend  its 
credit?  Compare  the  two  as  to  (a)  security,  (b)  velocity  of 
circulation,  (c)  extent  of  use. 

24.  7.  "The  leading  operations  of  banks,  when  analyzed, 
can  be  resolved  into  cases  of  the  exchange  of  rights  against 
rights,  or  of  rights  against  money."  Explain  the  validity  of 
this  statement  in  the  case  of  (a)  deposits  over  the  bank's  coun- 
ter; (b)  note  issue;  (c)  the  discount  of  a  promissory  note; 
(d)  the  creation  of  deposits. 

24.  8.  Compare  the  following  in  respect  to  probable  use  of 
deposit  currency:  (a)  the  people  of  the  United  States  and  of 
Mexico ;  (b)  a  farming  community  and  Chicago ;  (c)  wholesale 
and  retail  purchasers. 

E  49 


50      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

What  factors  determine  the  relative  importance  of  deposit 
currency  in  the  circulating  medium  ? 

24.  9.  Briefly  describe  the  process  of  clearing  checks. 
By  what  process  and  to  what  extent  does  it  economize  the  use 
of  money  ? 

24.  10.  A,  B,  C,  D,  and  E  are  banks  constituting  a  clear- 
ing house  association.  On  a  given  day  they  present  checks 
for  clearing  as  follows : 


AGAINST  .... 

A 

B 

C 

D 

E 

By  A   .  . 
B   .  . 
C   .  . 
D   .  . 
E   .  . 

$11,175 
20,750 
9,250 
9,325 

$15,250 

$19,400 
17,900 

$10,325 
7,500 
14,075 

$10,150 
9,125 
12,175 

7,100 

18,100 

8,475 
7,650 

13,325 
9,i75 

10,525 

Find :  (a)  the  total  amounts  due  to  and  by  each  bank ;  (b)  the 
balance  due  to  or  by  each  bank ;  (c)  the  percentage  of  checks 
settled  by  offset.  In  what  different  ways  may  the  balances 
be  settled? 


BANKING  OPERATIONS 

26.  1.  Arrange  the  following  items  in  the  form  of  a  bank 
statement  showing  in  parallel  columns  the  resources  and  liabili- 
ties: Real  Estate,  $30,000;  Surplus,  $30,000;  Deposits, 
$283,000;  Loans,  $300,000;  Cash,  $80,000;  Undivided  Prof- 
its, $12,000;  Other  Assets,  $10,000;  Capital  Stock,  $100,000; 
Bonds  and  Stocks,  $80,000;  Circulating  Notes,  $75,000. 

What  items  will  be  affected,  and  how,  by  each  of  the  fol- 
lowing operations? 

(a)  The  bank  makes  a  new  loan  of  $20,000  for  two  months 
at  the  discount  rate  of  6  per  cent  per  annum;  proceeds  are 
taken  one-sixth  in  specie  and  the  balance  in  a  deposit  account. 

(6)  New  deposits  of  $10,000  are  made  over  the  bank's 
counter,  —  $2000  in  gold  and  silver,  $2000  in  notes  of  other 
banks,  $1000  in  notes  of  this  bank,  $3000  in  checks  on  other 
banks,  $2000  in  checks  drawn  on  this  same  bank. 

(c)  The  bank  adds  $2000  to  its  surplus  and  distributes  a 
dividend  of  2  per  cent ;  stockholders  take  half  of  the  dividend 
in  cash  and  leave  half  on  deposit  with  the  bank. 

(d)  Loans  of  $25,000  mature  and  are  paid,  —  $5000  in 
specie,  $5000  in  notes  of  this  bank,  and  the  balance  in  checks 
drawn  against  deposits  in  this  bank. 

(e)  A  "run"  occurs  against  the  bank.    To  strengthen  its 
reserve,  the  bank  sells  one  half  its  bonds  and  stocks  for  cash  at 
a  sacrifice  of  5  per  cent.    The  "run"  comes  to  an  end  after 
$50,000  of  deposits  have  been  withdrawn  in  money,  and  $10,000 
in  the  bank's  notes  presented  for  redemption. 

Draw  up  a  statement  showing  the  condition  of  this  bank  after 
the  series  of  operations  has  been  completed. 

26.  2.  What  is  a  bank  reserve?  Why  should  it  be  main- 
tained? How  should  you  measure  the  strength  of  a  reserve? 

51 


52      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

What  considerations  induce  a  bank  (a)  to  diminish  its  reserve? 
(6)  to  increase  it?  By  what  means  may  a  bank  increase  its 
reserve? 

25.  3.  "It  is  natural  to  think  of  a  bank's  loans  as  being 
the  children  of  its  deposits.  But  it  is  at  least  as  true  to  think 
of  the  deposits  as  being  the  children  of  its  loans." 

In  what  sense  is  each  statement  accurate? 

25.  4.  What  is  to  be  said  for  and  against  the  combination 
of  commercial  and  investment  banking?  How  extensively 
are  the  two  combined  to-day? 

25.  5.  What  are  demand  loans?  Why  do  they  play  so 
important  a  part  in  commercial  banking?  Why  do  the  rates 
on  demand  loans  fluctuate  more  widely  than  on  time  loans? 
Should  the  use  of  demand  loans  be  restricted  ? 

25.  6.  Suppose  a  large  increase  in  the  quantity  of  specie 
held  by  the  commercial  banks.  How  would  this  tend  to  affect 
(a)  the  rate  of  bank  discount?  (b)  the  volume  of  deposit  cur- 
rency? (c)  the  value  of  money  (as  the  commercial  world  uses 
the  phrase)?  (d)  the  value  of  money  (as  the  economist  uses 
the  phrase)  ? 

25.  7.  What  part,  if  any,  do  commercial  banks  play  in 
(a)  the  process  of  investment?  (b)  the  increase  of  capital? 
(c)  the  course  of  industrial  development?  (d)  leadership  in 
the  business  world?  In  what  respects  may  the  influence  of 
commercial  banks  be  undesirable  ? 


CENTRALIZED  BANKING  SYSTEMS 

26.  1.  For  what  reasons  has  government  regulation  of 
bank  note  issue  been  necessary?  What  are  the  chief  types  of 
regulation?  How  do  you  account  for  the  difference  in  type 
prevailing  in  different  countries? 

26.  2.  Compare  the  central  banks  of  France,  England,  and 
Germany  with  respect  to 

(a)  organization  and  management  ; 

(b)  branches; 

(c)  nature  and  extent  of  government  control  ; 
(d  )  monopoly  of  note  issue  ; 

(e)  limitation  of  note  issue  ; 
^.(f)  elasticity  of  note  issue  ; 

(g)  security  for  notes  issued  ; 
(h)  deposit  business  ; 

(f)  size  and  composition  of  reserve  ; 

(/')  operations  other  than  deposit  and  issue  ; 
(k)  relation  to  other  banks. 

^    26.  3.    What  action  is  taken  by  the  Bank  of  England  when 
a  crisis  threatens  ? 


t    I.JL 

^ 


27.  1.  Describe  the  national  bank  system  as  it  stood  in 
1913,  with  respect  to  (a)  note  issue ;  (6)  reserve  requirements. 

Wherein  had  the  system  proved  satisfactory? 

27.  2.  What  specific  defects  in  the  national  bank  system 
was  the  Federal  Reserve  Act  of  1913  designed  to  remedy? 
What  measures  were  adopted  to  this  end  ? 

27.  3.  What  legal  regulations  respecting  reserves  against 
deposits  in  national  banks  exist  at  present? 

To  what  extent  are  such  provisions  found  in  other  countries  ? 

To  what  extent  and  for  what  reasons  are  they  desirable? 
unnecessary  ? 

27.  4.  Describe  the  organization  of  a  Federal  Reserve 
Bank.  What  are  its  chief  functions? 

27.  5.  For  what  different  types  of  notes  is  provision  made 
under  the  Federal  Reserve  Act?  What  regulations  govern  the 
issue  of  each?  What  is  their  relative  importance?  What 
purposes  are  served  by  each? 

27.  6.  What  requirements  does  the  Federal  Reserve  Act 
establish  for  reserves  of  Federal  Reserve  Banks  against  (a)  their 
deposits?  (6)  Federal  Reserve  Notes? 

27.  7.  Did  the  establishment  of  the  Federal  Reserve  Banks 
increase  or  decrease  the  legal  lending  power  of  the  banks  in 
the  United  States? 

27.  8.  What  is  the  Federal  Reserve  Board,  and  what  are 
its  principal  powers  ? 

27.  9.  What  are  the  outstanding  characteristics  of  the 
present  banking  system  of  the  United  States  ? 


55 


SOME   PROBLEMS   OF  LEGISLATION  ON   BANKING 

28.  1.  In  what  respects  are  bank  notes  and  deposits  es- 
sentially alike?  different? 

28.  2.  Why  should  special  security  be  accorded  to  note 
holders?  In  what  forms  is  this  special  security  provided  by 
the  various  governments? 

28.  3.  By  what  different  requirements  may  excessive  issue 
of  bank  notes  be  prevented  ? 

28.  4.  What  may  be  said  for  and  against  the  following 
measures  for  protecting  depositors:  (a)  restricting  the  kind  of 
business  the  bank  may  undertake ;  (6)  limiting  loans  made  to 
particular  individuals;  (c)  frequent  government  inspection; 
(d)  insurance  of  deposits;  (e)  legal  minimum  reserves  against 
deposits  ? 

28.  5.  What  is  meant  by  elasticity  of  currency?  Why 
is  it  desirable  that  a  currency  be  elastic?  What  forms  of 
currency  in  the  United  States  are  elastic  ? 

28.  6.  "Deposits  are  ideally  elastic."  Explain.  Under 
what  circumstances  might  this  not  be  the  case? 

28.  7.  What  are  the  advantages  and  disadvantages  of 
(a)  a  centralized  note  issue?  (b)  a  central  bank?  Would  the 
establishment  of  a  central  bank  in  the  United  States  be 
desirable  ? 


57 


CRISES  AND  INDUSTRIAL  DEPRESSIONS 

29.  1.  Make  a  chronological  table  of  industrial  crises 
noting  the  geographical  extent  of  each  and  the  degree  of  periodic- 
ity apparent. 

—    29.  2.    What  are  the  phases  of  a  typical  business  cycle?  . 
Sketch  the  significant  features  of  each  phase. 

29.  3.  What  have  been  assigned  as  fundamental  causes  of 
industrial  crises? 

29.  4.  Why  should  crises  occur  most  frequently  in  coun- 
tries industrially  most  highly  developed? 

Should  you  expect  crises  to  occur  more  frequently  in  the 
United  States  in  the  future  than  in  the  past?  to  be  more 
acute? 

29.  5.  In  what  different  ways  is  the  course  of  the  business 
cycle  influenced  by  the  temper  of  the  business  class? 

29.  6.  Explain  the  parts  played  in  the  course  of  industrial 
crises  and  depressions  by  (a)  distributing  middlemen ;  (6)  finan- 
cial middlemen ;  (c)  the  accumulation  of  fresh  savings ;  (d)  ex- 
tensive crop  failures;  (e)  an  increasing  gold  supply;  (/)  the 
failure  of  an  important  industrial  incorporation;  (g)  an  ex- 
tension of  government  interference  with  the  conduct  of 
business. 

29.  7.  "The  period  of  depression  is  often  a  healthy  one." 
Wherein?  Is  the  period  of  expansion  often  an  unhealthy 

on*? 


•  >o 


FINANCIAL  PANICS 

30.  1.    Distinguish  the  financial  panic  from  the  industrial 
crisis. 

Can  there  be  an  industrial  crisis  without  a  financial  panic? 
a  financial  panic  without  an  industrial  crisis?  Is  the  crisis 
more  severe  if  accompanied  by  a  financial  panic? 

30.  2.  In  time  of  panic  is  there  less  money  than  usual  in 
the  country  ?  in  the  banks  ?  in  circulation  ? 

Is  there  an  unusually  large  demand  for  money  ? 

30.  3.  "In  times  of  panic,  the  only  sound  policy  for  banks 
...  is  to  lend  freely."  Why?  Why  is  this  policy  difficult  to 
pursue  ?  Is  such  a  policy  desirable  "  when  the  storm  is  brewing  "  ? 

30. 4.  What  means  should  be  employed  to  prevent  the 
development  of  an  incipient  panic  when  a  single  bank  is  beset 
by  a  run?  Are  the  same  means  available  when  distrust  of  the 
banks  becomes  general  ?  If  not,  why  not  ?  If  so,  under  what 
conditions  ? 

30.  5.  What  lending  policy  has  been  generally  pursued 
by  banks  in  the  United  States  (a)  when  a  panic  has  threatened? 
(ft)  after  a  panic  has  been  precipitated  ?  Why  ? 

30.  6.  Why  has  an  "emergency  currency"  been  needed 
in  time  of  panic  in  the  United  States?  How  has  it  been  pro- 
vided, for  what  special  purpose,  and  with  what  success? 

Will  it  be  similarly  needed  and  provided  in  the  future? 

30.  7.  "Panics  are  bad  in  themselves,  and  bad  in  their  after 
effects."  Why?  Can  a  similar  statement  be  made  as  to  crises? 

30.  8.  To  what  extent  and  by  what  means  can  financial 
panics  be  prevented? 

30.  9.  What  are  the  major  evils  of  the  industrial  crisis 
and  depression  ?  By  what  means  may  these  evils  be  alleviated  ? 
What  is  the  prospect  of  their  entire  disappearance  ? 

61 


THE  THEORY  OF  PRICES  ONCE  MORE 

31.  1.     In  what  forms  may  credit  be  extended? 

Under  what  circumstances  does  the  use  of  credit  dispense 
with  the  use  of  money?  Under  what  circumstances  does  it 
not? 

31.  2.  How  is  the  volume  of  deposits  related  to  (a)  the 
volume  of  transactions?  (6)  the  quantity  of  money  in  circula- 
tion? (c)  the  amount  of  reserve  money  held  by  the  banks? 

31.  3.  How  do  the  following  tend  to  affect  the  quantity 
of  "purchasing  power  in  terms  of  money" :  (a)  an  increase  of 
charge  accounts;  (b)  money  hoarding;  (c)  a  limited  issue  of 
convertible  government  paper  money;  (d)  an  increased  use  of 
deposit  accounts  in  commercial  banks;  (e)  a  change  in  the 
temper  of  the  business  community ;  (/)  the  establishment  of  a 
stock  exchange  clearing-house;  (g)  an  increased  output  of 
gold;  (h)  an  increased  output  of  silver?  4f]b 

31.4.  How  would  a  decrease  in  "inactive"   deposit  ac- 
counts influence  the  total  purchasing  power?  the  price  level jV^-iAA- 

31. 5.  What  factors   determine   the  propomon   of  'bank 
deposits  and  notes  to  reserve  money? 

31.  6.  The  per  capita  stock  of  money  in  1910  in  various 
countries  was  estimated  as  follows : 

France       $37-85 

United  States 35-21 

Canada 29.05 

British  Isles 17.74 

Germany 12.76 

Russia 6.36 

Japan 3.73 

63 


64      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

What,  if  anything,  does  this  indicate  as  to  (a)  the  per  capita 
wealth?  (6)  the  average  of  well-being?  (c)  the  habits  of  the 
population  ? 

What  factors  determine  the  amount  of  money  per  capita? 

31.  7.  By  what  process,  if  at  all,  should  you  expect  the 
following  to  influence  the  general  price  level  hi  the  United 
States:  (a)  advertising;  (V)  the  growth  of  the  trusts;  (c)  in- 
creasing demands  of  trade-unions;  (d)  extravagant  purchases 
of  automobiles ;  (e)  increased  output  from  South  African  gold 
mines;  (/)  wider  use  of  deposit  accounts  in  France? 

31. 8.  What  factors  are  primarily  responsible  for  the 
great  rise  in  prices  in  the  United  States  since  1897? 

31.  9.  Wherein  do  modern  currency  systems  fall  notably 
short  of  perfection? 

31. 10.  What  means  have   been  proposed  for  stabilizing 
the  price  level?    What  obstacles  stand  in  the  way  of  their 
success? 

31. 11.  Define :  "money" ;  "currency" ;  "cash" ;  "specie." 


THE  FOREIGN  EXCHANGES 

32.1.  What  is  a  bill  of  exchange?  By  whom  and  on 
whom  is  it  drawn,  and  to  whom  is  it  payable? 

Illustrate  its  use  hi  the  purchase  of  £1000  of  cotton  goods 
from  J.  B.  &  Co.  of  Manchester,  England,  by  U.  S.  &  Co.  of 
New  York  City. 

32.  2.  Suppose  that  a  New  York  importer  can  get  50  gross 
of  Sheffield  razors  delivered  in  New  York  for  4Ad.  each  (the 
duty  included),  and  that  he  can  sell  them  for  95^  each.  What 
would  be  his  profit  on  such  a  transaction  if  the  rate  of  exchange 
on  London  were  $4.84?  if  the  rate  were  $4.87?  (T.) 

32. 3.  What  is  meant  by  "par  of  exchange"? 

Find  the  par  of  exchange  (expressed  in  terms  of  francs  to 
one  dollar)  between  New  York  and  Paris,  given  the  fine  gold 
content  of  the  dollar  as  23.22  grains  and  that  of  the  franc  as 
4.48  grains.  Would  a  rate  of  5.20  indicate  a  premium  or  dis- 
count ?  a  tendency  toward  gold  export  or  import  ? 

32. 4.  What  determines  how  widely  the  rate  of  sterling 
exchange  may  fluctuate?    How  has  the  range  of  fluctuation 
been  affected  by  the  general  European  war? 

32.5.  Who  are  the  "dealers"  in  bills  of  exchange?    Are 
they  productive  laborers? 

32.  6.  How  is  the  rate  of  sterling  exchange  settled  at  any 
given  time  ?  Would  rates  be  different  if  there  were  no  "  dealers  " 
in  foreign  exchange?  What  special  factors  influence  the  rate 
on  "bankers'  bills"?  on  "time  bills"? 

32.  7.  A  New  York  company  sells  a  large  shipment  of 
oil  to  a  railroad  company  in  India.  How  might  payment  be 
effected  through  London? 

32.  8.  "The  flow  of  specie  sets  in  motion  forces  which 
F  65 


66      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

sooner  or  later  stop  the  flow."    What  are  these  forces?    How 
do  they  accomplish  this  result? 

How  does  a  rise  in  the  rate  of  bank  discount  in  London 
affect  the  flow  of  specie? 

32. 9.  What   determines   the    par   of    exchange   between 
(a)  two  gold  standard  countries?  (b)  a  gold  standard  and  a 
silver  standard  country?  (c)  a  gold  standard  country  and  one 
upon  a  depreciated  paper  standard  ? 

32. 10.  In  what  respects  is  domestic  exchange  essentially 
like  foreign  exchange ?  different? 


33. 1.  List  the  kinds  of  transactions  which  give  rise  to 
payments  (a)  by  persons  in  the  United  States  to  persons  hi 
England ;  (6)  by  persons  hi  England  to  persons  hi  the  United 
States. 

33.  2.  How  is  the  rate  of  sterling  exchange  in  New  York 
affected  (a)  immediately,  (6)  in  the  long  run,  by  large  purchases 
of  American  securities  by  English  investors? 

How  is  the  American  balance  of  trade  affected  ? 

33.  3.  How  should  you  expect  the  rate  of  sterling  exchange 
in  New  York  to  be  affected  by  (a)  a  financial  panic  in  New 
York  City?  (b)  a  failure  of  the  American  wheat  crop?  (c)  the 
rapid  development  of  an  American  merchant  marine?  (d)  a 
great  increase  in  American  gold  output?  (e)  increased  pur- 
chases of  coffee  from  Brazil?  (/)  the  general  European  war? 

33.  4.  The  establishment  of  a  postal  savings  system  hi 
the  United  States  is  expected  to  bring  about  a  diminution  hi 
the  remittances  made  to  foreign  countries  by  those  who  have 
recently  immigrated  to  this  country.  Would  such  a  change 
be  to  the  advantage  of  the  United  States?  If  so,  wherein? 
If  not,  why  not? 

33.  5.  "These  balance-of-trade  reports  show  .  .  .  that 
we  have  had  no  real  prosperity  hi  this  country  for  about  six 
years.  The  balance  of  trade  has  been  against  us.  As  a  nation 
we  have  been  spending  more  than  we  have  been  earning.  For 
three  years  hi  succession  we  have  been  paying  off  this  debit 
account  by  sending  abroad  an  immense  amount  hi  gold  bullion. 
If  we  keep  that  up  we  will  'go  broke.'  We  must  see  to  it  that 
more  money  comes  in  than  goes  out  or  Uncle  Sam  will  go  into 
the  hands  of  a  receiver." 

67 


68      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

What  have  you  to  say  regarding  these  statements  and  their 
implications  ? 

33.  6.  "Hundreds  of  millions  of  dollars  are  taken  away 
from  the  United  States  each  year  by  tourists,  by  returning 
immigrants,  and  to  pay  interest  and  dividends  on  our  securi- 
ties held  abroad.  How  can  a  nation,  any  more  than  an  in- 
dividual, grow  rich  if  it  keeps  on  paying  out  more  money  than 
it  takes  in  ?  " 

Criticize. 

33.  7.  Suppose  the  people  of  one  country  to  lend,  through 
a  long  period,  large  sums  annually  to  the  people  of  another 
country.  Trace  the  effects  in  the  lending  country,  immediate 
and  ultimate,  on  (a)  the  flow  of  specie;  (b)  merchandise  im- 
ports and  exports ;  (c)  the  price  of  foreign  exchange. 

Should  you  expect  such  a  lending  country  to  have  a  "  favor- 
able" or  an  "unfavorable"  balance  of  trade? 


THE  THEORY  OF  INTERNATIONAL  TRADE.  WHY 
GOODS  ARE  EXPORTED  AND  IMPORTED 

34.  1.  "A  country  exports  the  things  which  are  low  in 
price  within  its  borders."  Does  the  United  States  export 
crushed  stone,  fresh  vegetables,  hay,  copper?  What  implica- 
tions are  involved  in  the  quoted  statement? 

34.  2.  What  are  the  principal  factors  which  lead  to  the 
export  of  (a)  cotton  from  the  United  States?  (6)  cotton  goods 
from  England?  (c)  toys  from  Germany?  (d)  tea  from  China? 
(e)  agricultural  implements  from  the  United  States? 

34.  3.  Under  what  circumstances,  if  any,  can  a  com- 
modity produced  with  labor  paid  high  money  wages  be  profit- 
ably exported  to  a  country  in  which  the  same  commodity1  is 
produced  with  labor  receiving  low  money  wages? 

34.  4.  "We  need  not  fear  labor  competition  with  Chris- 
tendom. The  readjustment  would  involve  some  temporary 
hardship,  but  it  would  be  only  temporary.  But  to  compete 
with  the  wages  paid  in  India,  China,  and  Japan  would  be  im- 
possible. In  some  cases  American  wages  would  fall;  in  other 
cases  American  manufactories  would  cease.  Wages  at  three 
or  four  dollars  a  day  could  not  be  long  kept  up  in  competition 
with  wages  at  twenty-five,  fifty,  or  even  seventy-five  cents  a 
day.  Oriental  wages  would  rise  a  little;  American  wages 
would  fall  a  great  deal." 

Criticize. 

34.  5.  Can  a  country  advantageously  import  a  commodity 
in  producing  which  its  labor  is  more  effective  than  labor  is  in 
producing  that  commodity  in  the  country  whence  it  is  imported  ? 

34.  6.  "It  appears  to  me  that  all  labor  done  directly  and 
indirectly  in  carrying  articles  to  the  place  of  consumption  which 
could  have  been  produced  in  sufficient  abundance,  with  as  little 

69 


70      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

labor,  at  the  place  of  consumption  as  at  the  place  they  were 
carried  from,  is  useless  labor."  —  Lincoln's  Complete  Works, 
i.  92. 

Criticize. 

34.  7.  How  should  you  state  "  the  principle  of  comparative 
cost"? 

34.  8.  To  what  extent,  if  any,  would  international  trade 
continue  if  labor  were  everywhere  perfectly  mobile? 

34.  9.  Under  what  conditions  may  it  be  profitable  to  pro- 
duce domestically  a  part,  and  to  import  a  part,  of  a  supply  of  a 
commodity?  In  what  industries  is  such  a  division  of  the  field 
most  likely  to  persist  ? 


THE  THEORY  OF  INTERNATIONAL  TI 
WHEREIN  THE  GAIN  CONSIST 


35.  1.  Do  countries  participating  hi  .international  trade 
share  equally  in  its  gains?  Does  a  cptrfitry  ever  lose  by  par- 
ticipation in  international  trade  i 

35.  2.  How  is  the  partition  of  gains  from  international 
trade  affected  by  (a)  the  nature  of  the  demand  for  the  articles 
traded?  (b)  changes  in  the  amount  of  other  payments  than 
those  for  merchandise  ?  (c)  the  appearance  of  a  new  article  of 
export?  (d)  differences  in  money  incomes?  (e)  the  effective- 
ness of  labor  in  producing  exported  commodities? 

35.  3.  Show  under  what  conditions  the  following  may  be 
true:  "We  may  often,  by  trading  with  foreigners,  obtain  their 
commodities  at  a  smaller  expense  of  labor  and  capital  than 
they  cost  to  the  foreigners  themselves."  (N.) 

15.  4.     "International  trade  is  virtually  a  mode  of  cheapen- 
ing production."    Explain. 

16.  5.     Is  the  United  States  a  country  of  peculiarly  high 
money  incomes?  of  peculiarly  high  prices? 

In  a  country  of  high  money  incomes,  which  commodities 
will  be  at  a  relatively  high  price,  which  at  a  relatively  low  price? 


1*7- 


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PROTECTION  AND  FREE  TRADE.  THE  CASE  FOR 
FREE  TRADE 

\   36.  1.     "The  internal  commerce  of  the  United   States 
the  best  possible  argument  for  free  trade."    Explain. 

36.  2.     "When  we  buy  manufactured  goods   abroad, 
get  the  goods  and  the  foreigner  gets  the  money.     When  we 
buy  the  manufactured  goods  at  home,  we  get  both  the  goods 
and  the  money." 

Criticize. 

36.  3.    In  what  manner  and  through  what   process  does 
the  imposition  of  a  protective  tariff  on  manufactures  tend  to 
affect  (a)  truck  farmers?  (b)  other  farmers?  (c)  the  extent 
employment?  ^V^J^  a?  ^-il^jtAt^    *?•**  L. 

36.  4.  "There  is  nb*teal<excusev?qr  baying  printing  out- 
side of  Atlanta.  Aside  from  patriotic  motives '  oT  loyalty  to 
Atlanta's  industries,  the  business  men  of  the  city  have  a  narrow 
view  of  the  subject  if  they  think  they  can  gain  by  sending 
printing  orders  away.  The  removal  of  $500,000  cash  each 
year  from  this  city  represents  an  actual  loss,  because  there  is 
no  exchange  of  trade  on  the  part  of  Eastern  and  Western  print- 
ers with  Atlanta's  stores  and  factories.  .  .  .  The  vital  point  is : 
If  Atlanta  business  men  have  all  their  printing  done  in  Atlanta 
500  more  workmen  would  be  needed  by  local  printing  plants  to 
turn  out  the  work ;  500  extra  employees  in  the  printing  trades 
would  spend  their  wages  of  $400,000  with  Atlanta  firms." 

Criticize. 

36.  5.  If  the  United  States  should  abandon  the  policy  of 
protection,  how  would  real  wages  be  affected?  ^cult  '^*-<«->-~-Jl  \*~^ 

\J  ^*±AJ*--4* 

36.  6.     "The  principle  of  protection  is  to  build  up  our 
industries  by  manufacturing  our  own  products.    This  gives 
our  people  employment,  keeps  the  money  in  the  country,  and 
makes  this  country  an  independent  and  self-reliant  nation." 

73 


74      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

Wherein,  if  at  all,  are  these  statements  inaccurate  or  mis- 
leading ?  Wherein,  if  at  all,  correct  ? 

36.  7.  "The  great  advantage  of  foreign  trade  is  in  fur- 
nishing a  market  for  our  surplus  products  which  would  other- 
wise go  to  waste." 

Criticize. 

36.  8.  "If  it  costs  10  cents  to  produce  a  razor  in  Germany 
and  20  cents  in  the  United  States,  it  will  require  100  per  cent 
duty  to  equalize  the  conditions  in  the  two  countries.  .  .  . 
And  so  far  as  I  am  concerned,  ...  if  it  was  necessary  to 
equalize  the  conditions  to  give  the  American  producer  a  fair 
chance  for  competition,  I  would  vote  for  300  per  cent  as  cheer- 
fully as  I  would  for  50  per  cent." 

Is  this  position  a  reasonable  one  ? 

36.  9.  What  is  to  be  said  for  and  what  against  the  policy 
of  imposing  duties  (a)  just  sufficient  to  equalize  differences 
in  labor  expense  between  the  United  States  and  foreign  coun- 
tries ?*$>Jiriore  than  sufficient  to  equalize  these  differences? 
(c)  less  than  sufficient  ?  <z*t^**^^ +^»~\^t-<. 

36.  10.  For  what  group  of  laborers,  Af  any,  can  it  be  main- 
tained that  (a)  protective  duties  tend  to  make  their  real  wages 
lower  ?  (b)  protective  duties  tend  to  keep  their  real  wages  high  ? 
(c)  protective  duties  tend  to  make  their  real  wages  higher  ? 

36.  11.  Under  what  circumstances  may  the  imposition  of 
a  protective  duty  result  in  raising  the  price  of  the  dutiable 
article  (a)  by  the  amount  of  the  duty?  (b)  by  less  than  the 
amount  of  the  duty?  Under  what  circumstances,  if  any,  may 
it  leave  the  price  undisturbed  ? 

36.  12.  Can  a  customs  duty  be  highly  protective  to  in- 
dustry and  at  the  same  time  highly  productive  of  govern- 
ment revenue? 

36.  13.     Is  the  tariff  "the  mother  of  trusts"? 

36.  14.  Does  protection  necessitate  the  imposition  of  cus- 
toms duties?  Does  free  trade  imply  a  total  absence  of  cus- 
toms duties?  What  is  meant  by  "a  tariff  for  revenue  only"? 


PROTECTION  AND  FREE  TRADE.  SOME  ARGU- 
MENTS FOR  PROTECTION 

37.  1.  "Protective  duties,  by  their  effects  on  general 
money  incomes,  may  bring  more  advantageous  terms  of  in- 
ternational exchange."  How? 

37.  2.  What  is  the  principle  of  protection  to  young  in- 
dustries? What  economic  conditions  warrant  such  protec- 
tion? What  is  the  present  importance  of  the  principle  in  the 
United  States? 

37.  3.  What  is  the  case  for  and  against  direct  ship  sub- 
sidies in  the  United  States  ? 

37.  4.  On  what  grounds  has  diversification  of  industry 
been  considered  politically  and  socially  desirable?  May  pro- 
tective tariffs  be  important  agencies  for  promoting  such  diversi- 
fication ? 

37.  5.  What  special  arguments  are  there  for  and  against  a 
policy  of  protection  for  England  to-day  ? 

37.  6.  How  do  you  explain  the  trend  of  tariff  policy  since 
1870? 

37.  7.  What  has  been  the  effect  of  the  protective  tariff 
in  the  United  States  since  the  Civil  War  upon  (a)  the  course 
of  industry?  (6)  government  finance?  (c)  the  prosperity  of  the 
country? 

37.  8.  What  difficulties  are  involved  in  reducing  or  abolish- 
ing protective  duties? 

37.  9.  In  what  way  does  the  protective  tariff  figure  in 
American  political  life?  In  what  respects  is  its  influence  ob- 
jectionable ?  wholesome  ? 


75. 


INTEREST    ON    CAPITAL    USED    IN    PRODUCTION. 
THE  CONDITIONS  OF  DEMAND 

38. 1.  Contrast  the  interpretations  given  to  (a)  "distribu- 
tion," (6)  "money,"  (c)  "capital,"  (d)  "interest,"  by  (1)  busi- 
ness men  and  (2)  economists. 

38.  2.  How  far,  if  at  all,  is  the  income  derived  from  the 
following  to  be  called  interest :  an  apartment  block ;  a  pawn- 
broker's loan;  a  United  States  2-per-cent  bond;  a  Pennsyl- 
vania Railroad  bond ;  a  piano ;  an  automobile  truck  ? 

38.  3.  Where,  in  the  financial  columns  of  a  current  news- 
paper, is  the  prevailing  rate  of  interest  in  the  economic  sense 
to  be  found  ? 

38.  4.  Would  doubling  the  supply  of  money  lower  the 
rate  of  interest?  Would  it  lower  the  rate  of  bank  discount? 

38.  5.  Might  interest  arise  if  there  were  no  money?  if 
there  were  no  capital  ? 

38.  6.  "Production  with  capital  has  been  aptly  described 
...  as  indirect  or  roundabout  production."  Explain. 

38.  7.  "The  laborers  as  a  whole  produce  more  than  they 
receive."  Do  you  agree?  If  so,  does  the  statement  neces- 
sarily imply  social  injustice? 

38. 8.  In  what  sense  is  capital  productive?  Are  idle 
owners  of  capital  productive? 

38.  9.  How  should  you  expect  the  demand  for  capital  to 
be  affected  by  (a)  the  discovery  of  a  large  supply  of  cheap 
fuel?  (6)  a  rigid  restriction  of  immigration,  e.g.  by  a  literacy 
test?  (c)  the  general  European  war? 

38.  10.  What  is  meant  by  "the  marginal  productivity  of 
capital"? 

38.  11.  Is  there  a  general  tendency  to  diminishing  returns 
from  successive  doses  of  capital  ? 

77 


INTEREST.    THE  EQUILIBRIUM  OF  DEMAND  AND 

SUPPLY 

39. 1.    Enumerate  the  motives  which  impel  saving. 

39.  2.  Under  what  circumstances  are  present  goods  valued 
more  highly  than  future  goods  of  like  kind  ?  valued  less  highly  ? 

39.  3.  What  determines  how  much  more  highly  the  present 
goods  will  ordinarily  be  valued?  Would  the  "premium"  on 
present  goods  be  large  or  small  in  the  following  cases :  a  miser ; 
a  savage;  a  millionaire;  a  spendthrift;  a  Mexican  business 
man ;  a  day  laborer  with  a  large  family  ? 

39.  4.  Draw  up  a  "supply  schedule"  showing  the  amounts 
you  would  save  at  various  rates  of  interest  (a)  with  your  present 
income ;  (b)  with  an  income  of  $25,000  a  year.  Draw  the  cor- 
responding supply  curve. 

39.5.  Who  are  "spontaneous  savers"?  Who  save  the 
"marginal  savings"? 

39.  6.  "Interest  is  the  price  paid  for  the  use  of  savings." 
Explain  diagrammatically  the  determination  of  this  price. 

39.7.  Illustrate  by  diagram:  (a)  "negative  interest"; 
(b)  "extra-marginal  savings";  (c)  "savers'  surplus";  (d)  how 
a  drop  in  the  rate  of  interest  affects  savings. 

39.  8.  How  much  has  the  rate  of  interest  fluctuated  since 
the  Industrial  Revolution?  Why  has  it  not  fluctuated  more? 
What  is  the  probable  future  course  of  the  rate  of  interest? 


INTEREST  (Further  Considered) 

40.  1.  What  are  the  sources  of  the  demand  for  savings? 
What  is  their  relative  importance? 

40.  2.  How,  if  at  all,  would  the  following  tend  to  affect 
the  demand  for  savings,  the  supply  of  savings,  and  the  rate  of 
interest:  (a)  an  increasing  supply  of  money;  (b)  increasing 
extravagance  in  private  life;  (c)  a  general  European  war; 
(d)  equalization  of  money  incomes? 

40.3.  Are  durable  consumers'  goods  capital,  —  always? 
ever?  Does  the  demand  for  them  constitute  a  demand  for 
savings?  Does  the  repair  and  replacement  of  them? 

40.  4.  Enumerate :  (a)  the  factors  which  make  the  nominal 
rate  of  interest  differ  from  the  true  rate ;  (b)  the  factors  which 
make  the  true  rate  different  at  different  times ;  (c)  the  factors 
which  make  the  true  rate  different  in  different  countries  at  the 
same  time. 

40.  5.  "I  am  willing  to  concede  that  interest  ought  to  be 
paid  to  a  man  who  saves  out  of  a  small  income  by  self-denial, 
but  I  have  no  patience  with  the  paying  of  interest  to  a  capitalist 
whose  accumulations  have  cost  him  no  sacrifice."  (T.) 

Do  you  agree  ?  Can  a  distinction  between  the  two  be  prac- 
ticably made? 

40.  6.  What  is  to  be  said  for  and  against  (a)  the  prohibition 
of  the  taking  of  interest?  (6)  legal  limitations  on  the  rate  of 
interest? 


OVERPRODUCTION  AND  OVERINVESTMENT 

41. 1.  "Overproduction  may  mean  various  things."    What 
things? 

41. 2.  Should  "accumulation  and  investment  go  on  by 
leaps  and  bounds,"  how  would  the  following  be  affected :  (a)  pur- 
chases of  plant  and  machinery;    (b)  luxurious  expenditure; 
(c)  prices  of  consumers'  goods ;   (d)  the  return  on  capital  ? 

41.  3.  How  does  overinvestment  in  particular  industries 
bring  its  own  remedy?  How  does  a  tendency  toward  over- 
accumulation  ? 

41.  4.     What  is  Rodbertus'  theory  of  crises? 

41.  5.  To  what  extent  is  saving  and  investment  almost 
automatic?  What  are  the  resultant  dangers?  How  are  these 
to  be  avoided  ? 

41.  6.  What  are  the  characteristics  of  industries  which 
are  most  liable  to  overproduction? 


RENT,  AGRICULTURE,  LAND  TENURE 

42. 1.  Which  of  the  following  statements,  if  any,  should 
you  accept? 

(a)  "Rent  is  the  specific  product  of  land." 

(b)  "Rent  is  producers'  surplus  with  special  reference  to 
land." 

(c)  "Rent  is  the  price  paid  for  the  use  of  a  durable  good." 

(d)  "Rent  is  the  value  of  the  use  of  natural  resources." 

42.  2.  What  is  the  distinction  between  "commercial  rental" 
and  "economic  rent"? 

Under  what  circumstances,  if  any,  will  the  commercial 
rental  exceed  the  economic  rent?  the  economic  rent  exceed  the 
commercial  rental  ? 

42.  3.  Corn  is  produced  on  the  hills  of  New  Hampshire 
and  the  prairies  of  Iowa.  What  differences,  if  any,  should 
you  expect  in  the  two  places  in  (a)  the  price  of  corn  of  the  same 
quality  ?  (b)  the  cost  of  producing  such  corn  ?  (c)  the  rents  paid 
for  the  land  employed  in  the  cultivation  of  the  corn? 

42.  4.  What  differences  between  different  plots  of  land  are 
significant  in  the  determination  of  economic  rent? 

42.  5.  State  the  principle  of  diminishing  returns.  Does  it 
apply  to  lands  used  for  other  purposes  than  agriculture? 

42.  6.  Suppose  all  the  land  of  a  country  to  be  arranged  in 
order  of  increasing  fertility  in  concentric  circles  about  a  market. 
Suppose  the  differences  in  fertility  to  be  offset  exactly  by  the 
cost  of  transportation  to  the  market.  Would  there  be  rent? 
If  so,  under  what  conditions?  If  not,  why  not? 

42.  7.  Would  there  be  economic  rent  (a)  if  there  were  no 
tendency  toward  diminishing  returns?  (b)  if  the  government 
owned  all  the  land?  (c)  if  land  were  always  utilized  by  the 


86      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

owners?  (d)  if  the  supply  of  better  land  were  practically  un- 
limited ? 

42.8.  Explain  "margin  of  cultivation."  Distinguish 
(a)  the  intensive  and  extensive  margins ;  (b)  the  point  of  dimin- 
ishing returns  and  the  margin  of  cultivation. 

42.  9.  How  will  the  amount  of  labor  and  capital  applied 
at  the  intensive  margin  and  the  kind  of  land  cultivated  at  the 
extensive  margin,  be  affected  by  (a)  increasing  population? 
(6)  improvements  in  transportation?  (c)  the  discovery  of  a 
cheap  fertilizer? 

42.  10.  Explain :  intensive  cultivation ;  extensive  cultiva- 
tion ;  predatory  cultivation. 

Is  extensive  cultivation  necessarily  predatory?  Is  preda- 
tory cultivation  necessarily  wasteful? 

42.  11.  What  are  the  principal  forms  of  land  tenure? 
What  are  their  comparative  merits? 

42.  12.  What  considerations  bear  upon  the  proposal  to 
confiscate  for  the  benefit  of  the  community  (a)  the  economic 
rent  of  agricultural  land?  (6)  future  accretions  of  this  rent? 


URBAN  SITE  RENT 

43.  1.  What  are  the  causes  of  differences  in  the  advantages 
of  different  city  sites  for  (a)  retail  trading?  (b)  wholesale  trad- 
ing? (c)  manufacturing?  (d)  residence  purposes? 

43.  2.  "Our  prices  are  low  because  we  do  not  have  to  pay 
high  rent."  "The  prices  of  the  commodities  sold  on  the  more 
expensive  sites  are  not  higher."  Can  you  reconcile  these  two 
statements?  If  so,  how?  If  not,  which  is  correct,  and 
why? 

43.  3.  "The  effect  of  high  prices  for  land  and  high  rents 
is  apparent.  Industries  will  be  slow  to  locate  in  Pittsburgh 
if  rents  and  prices  of  land  are  higher  than  in  other  cities.  A 
higher  rent  or  interest  on  higher-price  of  land  bought  for  build- 
ing, will  be  a  constant  added  charge  on  cost  of  operation.  Con- 
sequently industries  will  tend  to  shun  a  city  where  this  higher 
cost  is  incurred." 

Do  you  think  this  consequence  will  ensue  ? 

43.  4.  In  the  utilization  of  urban  sites  does  the  tendency 
to  diminishing  returns  appear?  Does  the  intensive  margin 
appear?  Does  the  extensive  margin? 

43.  5.  To  what  extent  is  the  return  upon  the  following 
rent,  to  what  extent  interest:  (a)  "made  land";  (6)  residence 
sites  greatly  improved  by  a  real  estate  development  company ; 
(c)  a  permanent  drainage  system  on  a  farm ;  ( d)  a  golf  links  ? 

43.  6.  How  far  is  "ground  rent"  identical  with  economic 
rent? 

43.  7.  An  enterprising  merchant  takes  a  fifty-year  lease 
at  a  moderate  rental  on  an  urban  site  in  a  district  not  largely 
devoted  to  retailing,  believing  it  can  be  made  an  important 
retail  center.  He  builds  a  large  store,  advertises  assiduously, 
and  attracts  a  large  and  highly  profitable  custom.  Other 

«7 


88      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

dealers  are  attracted  to  the  district,  and  rents  and  land  values 
rise  greatly. 

Has  the  economic  rent  increased  (a)  on  his  site?  (b)  on 
neighboring  sites?  In  each  case  is  the  increase  in  land  values 
earned  or  unearned  ?  If  earned,  by  whom  ? 


RENT  (Concluded) 

44.  1.  What  different  elements  of  cost  must  be  covered  by 
the  returns  from  mines  ? 

44.  2.  How  does  the  tendency  toward  diminishing  returns 
appear  in  mining  ? 

44.  3.    To  what  extent  are  mining  royalties  economic  rent? 

44.  4.  The  annual  rental  of  a  piece  of  farm  land  is  $250. 
Taxes  on  the  piece  amount  to  $75  yearly.  If  the  current  rate 
of  interest  on  investments  of  the  same  security  is  5  per  cent, 
what  is  the  value  of  the  piece  ? 

How  and  why  might  the  value  be  affected  by  the  proximity 
of  a  rapidly  growing  city  ? 

44.  5.  The  rentals  from  a  New  York  office  building  amount 
to  $50,000  a  year.  The  building  is  now  worth  $200,000.  To 
provide  for  insurance,  depreciation,  taxes,  and  such  fixed  items, 
$10,000  is  required  annually.  What  is  the  value  of  the  land 
if  the  current  rate  of  interest  upon  investments  of  equal  security 
is  5  per  cent?  4  per  cent?  6  per  cent? 

44.  6.  How  should  you  expect  a  permanent  fall  in  the 
interest  rate  ultimately  to  affect  (a)  the  value  of  an  urban  site? 
(&)  the  rentals  of  an  office  building  on  the  site  ?  (c)  the  value  of 
the  building  ? 

44.  7.  What  is  meant  by  the  "unearned  increment"? 
Why  may  its  appropriation  by  the  state  be  urged  more  strongly 
in  the  case  of  urban  land  than  in  the  case  of  agricultural  land  ? 

44.  8.  In  the  case  of  urban  sites,  what  are  the  arguments 
for  and  against  state  appropriation  of  (a)  all  economic  rent? 
(b)  all  future  increases  of  economic  rent?  (c)  part  of  future  in- 
creases of  economic  rent? 

44.9.  "Increment  taxes  levied  on  capital  value  tend  to 
defeat  themselves."  Explain.  What  is  the  best  mode  of  levy- 
ing such  taxes? 

89 


MONOPOLY  GAINS 

45.  1.  Wherein  are  land  rents  and  monopoly  gains  alike? 
wherein  different  ? 

45.  2.  Make  a  classification  of  monopolies,  giving  illustra- 
tions of  each  variety. 

45.3.  What  is  a  "public  service  industry"?    For  what 
reasons  is  monopoly  in  such  industries  virtually  inevitable? 

45. 4.  The   Welsbach   burner  was,   through   a  patent,   a 
source  of  large  monopoly  gains.     Were  these  gains  socially 
justifiable  ? 

Should  you  say  the  same  of  enhanced  profits  received  by  a 
public  service  company  as  a  result  of  the  growth  of  the  com- 
munity ? 

45. 5.  Indicate   some   of   the   considerations   involved  in 
determining  the  fair  selling  value  of  a  public  service  property. 

45.  6.  "Vested  interests  present  questions  of  the  same  sort 
in  the  case  of  monopolies  as  in  the  case  of  land."  What  are 
these  questions? 


THE  NATURE  AND  DEFINITION  OF  CAPITAL 

46.  1.  "The  income  from  concrete  instruments  of  produc- 
tion may  be  regarded  as  'rent'  or  as  'interest,'  according  to 
the  point  of  view."  Explain. 

46.  2.  In  what  different  ways  may  the  amount  of  capital 
be  measured  ? 

46.  3.  From  what  different  viewpoints  have  the  distinc- 
tions between  interest,  rent,  and  monopoly  gains  been  discarded? 

46.  4.  On  what  grounds  does  the  retention  of  the  distinction 
between  land  and  capital  seem  advisable? 


DIFFERENCES  OF  WAGES.    SOCIAL  STRATIFICATION 

47. 1.  Enumerate  the  causes  which  give  rise  to  "equalizing 
differences"  in  wages. 

47.2.  Define  "real  differences"  of  wages.    What  are  the 
causes  of  such  differences  ?    Are  they  persistent  ? 

47.  3.  Distinguish  the  two  ways  in  which  expense  of  train- 
ing affects  wages. 

47.  4.  Which  should  you  expect  to  be  the  more  highly  paid, 
and  why :  (a)  a  street  car  conductor  or  a  motorman ;  (6)  a  sur- 
face car  motorman  or  a  subway  motorman;  (c)  a  day  school 
teacher  or  a  boarding  school  teacher ;  (d)  a  trained  nurse  or  a 
stenographer ;  (e)  a  steeple  jack  or  a  house  painter ;  (/)  a  cot- 
ton factory  operative  or  a  department  store  clerk? 

47.  5.  To  what  is  social  stratification  due  ?  How  far  do 
existing  social  strata  reflect  differences  in  inborn  ability? 

47.  6.  What  is  meant  by  mobility  of  labor  ?  What  forces 
promote,  what  forces  restrict  the  mobility  of  labor  ? 

47.  7.  How  are  wages  in  the  lowest  group  affected  by 
(a)  unrestricted  immigration?  (6)  free  public  school  education? 
(c)  immobility  of  labor  ? 

47.  8.  What  differences  of  wages  would  persist  if  labor  were 
perfectly  mobile  ?  Is  perfect  mobility  of  labor  desirable  ? 

47.  9.  Are  the  differences  between  men's  wages  and  women's 
wages  "equalizing"  or  "real"?  Are  these  differences  remov- 
able? socially  objectionable? 

47.  10.  Is  the  employment  of  women  in  gainful  occupations 
advantageous  to  society? 


95 


WAGES  AND  VALUE 

48.1.  Do  "expenses  of  production"  now  measure  "cost 
of  production"?  Why  or  why  not?  Would  the  situation  be 
different  if  there  were  perfect  mobility  of  labor  ? 

48.  2.     "Labor  of  any  kind  has  a  derived  utility."    Explain. 

48.  3.  What  is  meant  by  the  marginal  efficiency  of  a  group 
of  laborers?  How  is  it  related  to  the  rates  of  wages  received  by 
the  group  ? 

48.  4.  How  does  immigration  from  Europe  to  the  United 
States  tend  to  affect  (a)  the  marginal  productivity  of  labor  in 
the  United  States?  (6)  the  productivity  of  the  world's  labor 
supply? 

48.  5.  Under  what  circumstances  will  the  expenses  of  pro- 
duction determine  the  value  of  the  product?  Under  what 
circumstances  will  the  value  of  the  product  determine  the  ex- 
penses of  production  ? 

48. 6.  "The  exchanges  between  different  countries  are 
analogous  to  the  exchanges  between  non-competing  groups 
within  a  country."  Explain. 


BUSINESS  PROFITS 

49. 1.  To  what  extent,  if  at  all,  do  the  following  receive 
business  profits:  a  dentist;  a  popcorn  vendor;  a  real  estate 
speculator;  a  successful  inventor;  a  salaried  manager;  a 
consulting  engineer ;  a  holder  of  a  railroad  bond ;  an  idle  owner 
of  a  share  of  stock  ? 

49.  2.  A  business  firm  is  made  up  of  three  partners,  A  and 
B,  active  partners,  and  C,  an  inactive  (or  silent)  partner.  The 
firm  has  $150,000  capital  contributed  in  equal  shares  by  the 
three  partners.  Its  articles  of  agreement  provide  that  the  net 
earnings  shall  be  divided  as  follows :  first,  a  dividend  of  6  per 
cent  on  the  capital ;  second,  if  net  earnings  permit,  a  salary  of 
$4000  to  each  of  the  active  partners ;  lastly,  any  remainder  to 
be  distributed  as  further  dividend  on  the  capital.  The  firm's 
net  earnings  in  1908  were  $23,000.  What  were  the  "business 
profits"  of  the  firm? 

49.  3.  Distinguish  the  various  kinds  of  risks  assumed  by 
business  men.  Are  business  profits  essentially  a  reward  for 
the  assumption  of  risk? 

What  risks,  if  any,  are  taken  by  laborers?  Do  they  get 
business  profits? 

49.  4.  To  what  extent  do  the  following  determine  the  suc- 
cess of  business  men :  (a)  chance ;  (b)  education ;  (c)  exceptional 
native  ability;  (d)  mechanical  talent;  (e)  "capital  and  con- 
nection"? 

49.  5.  What  are  the  motives  which  impel  business  activity? 
What  qualities  are  requisite  for  success  ? 

49.  6.  How  would  the  following  be  affected  if  capable 
business  men  were  much  more  plentiful  than  they  are :  (a)  the 
social  income;  (b)  wages  of  laborers;  (c)  business  profits; 
(d)  social  stratification? 

49.  7.  Should  you  expect  business  profits  to  constitute  an 
increasing  or  a  decreasing  proportion  of  the  total  social  income? 

99 


BUSINESS  PROFITS  (Continue® 

50.  1.  Do  business  profits  consist  in  whole  or  in  part  of 
interest?  rent?  wages? 

In  what  sense  is  the  business  man  properly  termed  the 
"residual  claimant"  in  the  distribution  of  wealth? 

50.  2.  In  what  respects  are  rent  and  business  profits  alike? 
In  what  respects  different? 

If  all  men  were  equal  in  ability,  and  opportunities  were  the 
same  for  all,  would  there  be  business  profits  ? 

50.  3.  "A  capable  business  man  who  happens  to  own  an 
advantageous  site  gets  two  sorts  of  rent."  Explain. 

What  should  you  expect  to  be  the  result  if  the  same  form  of 
taxation  were  applied  to  both  ? 

50.  4.  Is  the  representative  firm  necessarily  a  new  firm? 
an  old  firm?  a  large  nrm?  a  small  firm?  Is  it  the  average 
firm? 

Define  "representative  firm." 

50.  5.  If  business  profits  rise,  how  will  the  interest  rate  be 
affected?  If  the  rate  of  interest  rises,  how  will  business  profits 
be  affected  ? 

50.  6.  To  what  extent  in  actual  business  are  business  profits 
connected  with  (a)  a  large  command  of  capital  ?  (b)  illegitimate 
business  practices? 

50.  7.  What  determines  whether  business  profits  are  legit- 
imate or  illegitimate?  What  forces  are  necessary  to  restrict 
business  profits  within  legitimate  limits? 


set 


GENERAL  WAGES 

61.  1.  Compare  the  effects  upon  wages  of  extensive  saving 
and  lavish  expenditure.  When  lavish  expenditures  are  sud- 
denly curtailed  and  the  savings  invested,  what  laborers,  if  any, 
are  injured?  benefited? 

61.  2.  Can  saving  be  carried  to  excess?  If  not,  why  not? 
If  so,  what  conditions  would  disclose  the  excess  ? 

51.  3.  Are  the  laborers  in  the  building  trades  of  a  city 
benefited  by  (a)  a  great  conflagration  in  the  city  ?  (b)  the  regular 
occurrence  of  small  fires? 

How,  if  at  all,  are  the  effects  different  for  the  laboring  class 
as  a  whole  ? 

51.4.  "'My  lord,'  said  the  shipbuilder  to  Lord  Dun- 
donald,  'we  live  by  repairing  ships,  as  well  as  by  building 
them,  and  the  worm  is  our  best  friend.  Rather  than  use 
your  preparation  [to  protect  the  bottoms  of  ships  of  war],  I 
would  cover  ships'  bottoms  with  honey  to  attract  worms.'" 

What  have  you  to  say  of  the  shipbuilder's  position  ? 

61.  5.  What  is  the  immediate  effect,  what  the  ultimate 
effect,  of  the  introduction  of  labor-saving  appliances  (a)  upon 
the  laborers  in  the  industry  directly  concerned?  (6)  upon 
laborers  in  other  industries? 

61.  6.  "The  inevitable  attitude  of  the  hired  workman  is  to 
favor  arrangements  that  seem  to  make  work  and  to  oppose  those 
that  seem  to  lessen  work."  Why?  Why  should  this  attitude 
be  thought  "inevitable"? 

51.7.  What  is  meant  by   (a)    "the   specific  product  of 
labor"?  (6)  "the  marginal  product  of  labor"?  (c)  "the  dis- 
counted marginal  product  of  labor"? 

51.8.  "Increased  efficiency  increases  the  supply  of  labor 
and  thus  tends  to  lower  wages  under  a  demand  and  supply 

103 


104     QUESTIONS   ON  THE  PRINCIPLES  OF   ECONOMICS 

doctrine."  "Increased  efficiency  increases  the  marginal  prod- 
uctivity of  labor  and  thus  causes  wages  to  rise."  Which  is 
correct  and  why?  (T.) 

51.  9.  To  what  cause  or  causes  should  you  ascribe  the  high 
level  of  real  wages  in  the  United  States  ? 

51.  10.  "With  the  increasing  complexity  of  production 
interest  tends  to  be  a  larger  part,  wages  a  smaller  part,  of  the 
total  income  of  society."  Why?  Does  it  follow  that  wage 
rates  become  lower  and  interest  rates  higher  ? 

51.  11.  In  what  direction  and  by  what  processes  should 
you  expect  general  wages  in  the  United  States  to  be  affected  by 
(a)  increasing  willingness  to  save?  (b)  increasing  ability  among 
business  men  ?  (c)  an  extension  of  industrial  education  ?  (d)  the 
adoption  of  a  literacy  test  for  immigrants  ?  (e)  increasing  limita- 
tion of  output  by  trade-unions?  (/)  adoption  of  equal  suffrage? 

51.  12.  "Economically  it  is  for  the  interest  of  every  class 
of  producers  to  see  the  efficiency  of  other  classes  of  producers 
increase."  Why?  (T.) 

61.  13.  Enumerate  the  most  effective  means  by  which 
general  wages  might  be  raised. 


POPULATION 

62.  1.  Under  what  circumstances,  if  any,  might  the  supply 
of  labor  increase,  population  remaining  the  same  ? 

62.  2.  Is  the  supply  of  labor  elastic,  i.e.  does  it  respond  to 
increases  and  decreases  in  demand  (a)  immediately?  (6)  in 
the  long  run? 

Does  an  increase  of  wage  rates  ever  cause  (a)  an  increased 
willingness  to  work?  (b)  a  decreased  willingness  to  work? 

62.  3.  What  did  Malthus  mean  by  the  "tendency"  of 
population  to  outstrip  subsistence?  Does  this  tendency  exist 
to-day  in  the  United  States? 

62.4.  What  is  meant  by  "preventive  check"?  "positive 
check"?  "birth  rate"?  "death  rate"?  How,  if  at  all,  are 
these  checks  and  rates  connected? 

62.  5.  Is  the  same  standard  of  living  necessarily  main- 
tained by  two  men  receiving  equal  wages?  by  two  men  ex- 
pending equal  amounts?  Would  your  answer  differ  if  one 
man  supports  a  family,  and  the  other  does  not? 

Define  "standard  of  living." 

62.  6.  How,  if  at  all,  are  standards  of  living  affected  by 
wages?  wages  by  standards  of  living? 


105 


POPULATION  (Concluded) 

63.  1.  What  is  the  connection  between  (a)  the  standard  of 
living  and  birth  rates?  (b)  birth  rates  and  the  supply  of  labor? 

(c)  the  labor  supply  and  the  marginal  productivity  of  labor? 

(d)  the  marginal  productivity  of  labor  and  wages  ? 

63.  2.  "I  cannot  understand  the  stress  laid  by  economists 
on  the  necessity  of  checking  the  growth  of  population.  Every 
person  born  into  the  world  brings  with  him  not  only  a  need 
for  goods,  but  also  the  power  to  produce  these  goods."  Com- 
ment. (T.) 

63.3.     What  is  "over-population"?  "under-population"? 

53.  4.  How  is  the  general  decline  hi  the  birth  rate  to  be 
explained?  the  general  decline  in  the  death  rate?  Are  the 
two  equally  signs  of  social  progress? 

53.5. 


COUNTRY 

BIRTH  RATE 

DEATH  RATE 

A  

3"? 

2< 

B  

4O 

7C 

C  

18 

IO 

D  

25 

30 

What  inferences  as  to  social  conditions  in  the  various  coun- 
tries can  you  draw  from  the  above  statistics?  Would  your 
answer  differ  if  you  knew  that  many  inhabitants  from  D  had 
been  emigrating  to  A? 

63. 6.  Of  recent  years  deaths  in  France  have  been  as 
numerous  as  births.  Is  this  socially  undesirable? 

107 


INEQUALITY  AND  ITS  CAUSES 

64.  1.  On  what  different  bases? has  the  distribution  of 
property  and  income  been  estimated?  Can  you  suggest  any 
not  mentioned  in  the  text? 

54.  2.  "The  poorest  class  is  the  most  numerous."  Does 
the  evidence  support  this  statement  ? 

54.  3.  "The  rich  are  becoming  richer  and  the  poor  poorer." 
Is  this  true? 

54.  4.  How  far,  if  at  all,  are  existing  inequalities  of  wealth 
and  income  attributable  (a)  to  inborn  differences?  (b)  to  social 
institutions? 

54.  5.  Upon  what  grounds,  if  any,  are  the  folio  whig  to  be 
condemned  or  justified  :  (a)  the  right  of  inheritance ;  (J)  the 
institution  of  private  property ;  (c)  the  leisure  class  ? 

54.  6.  What  has  been  meant  by  "a  natural  right"?  What 
is  the  foundation  for  individual  rights? 

54.7.  What  are  "vested  interests"?  When,  if  at  all, 
should  they  be  respected? 

54.  8.  If  the  competitive  system  is  retained,  is  inequality 
likely  to  increase?  to  decrease? 


109 


TRADE-UNIONS 

66. 1.  Why    is    trade-unionism    a    comparatively    recent 
movement?    Are  the  conditions  which  have  fostered  it  likely 
to  become  less  or  more  pronounced  ? 

55.2.  Are  the  interests  of  "labor"  and  "capital"  funda- 
mentally opposed  ? 

66.  3.  In  what  respects  is  the  single  laborer  at  a  disadvan- 
tage in  bargaining  with  an  employer?  What  advantages  hi 
bargaining  accrue  to  the  laborer  through  collective  action  ? 

65. 4.  Why  do  trade-unions  flourish  in  some  industries 
and  not  in  others?  Is  their  absence  in  a  particular  industry 
evidence  that  collective  bargaining  is  undesirable  in  that  in- 
dustry ? 

65.  5.  To  what  extent  and  by  what  means  can  trade-unions 
influence  (a)  the  wages  paid  in  a  given  occupation?  (b)  the 
general  level  of  wages? 

65.  6.  Give  the  arguments  (a)  from  the  viewpoint  of  the 
trade-unionist,  (6)  from  the  viewpoint  of  the  economist,  for  and 
against 

(1)  the  closed  shop ; 

(2)  the  open  shop ; 

(3)  the  closed  union ; 

(4)  the  open  union ; 

(5)  labor-saving  appliances ; 

(6)  limitation  of  output ; 

(7)  piece-work; 

(8)  a  standard  rate  of  wages ; 

(9)  semi-military  discipline  by  employers ; 

(10)  the  "scab"; 

(11)  the  strike; 

(12)  the  lockout; 

in 


112      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

(13)  the  boycott ; 

(14)  the  black-list. 

55.  7.  What  situation  with  respect  to  the  closed  union 
and  closed  shop  is  socially  most  desirable? 

55.  8.  Is  the  employer  justified  in  insisting  that  in  labor 
matters  he  will  deal  with  no  one  not  in  his  employ? 

55. 9.  Should  you  account  productive  laborers :  (a)  a 
trade-union  organizer;  (ft)  a  "walking  delegate";  (c)  a  strike 
agitator ;  (d)  a  strike  breaker  ? 

55.  10.  Is  destruction  of  property  ever  justifiable  in  a 
labor  dispute?  Is  intimidation? 

55.  11.  Are  there  industries  hi  which  the  strike  should  not 
be  permitted? 


LABOR  LEGISLATION 

66.  1.  Why  should  women  and  children  seek  factory  em- 
ployment? What  consequences  flow  from  such  employment, 
for  good?  for  evil? 

56.  2.    Enumerate  the  principal  subjects  of  labor  legislation. 

56.  3.  Is  labor  legislation  needed  in  industries  where  trade- 
unions  are  already  strong?  Is  there  anything  that  may  be  ac- 
complished by  labor  legislation  that  could  not  be  accomplished 
by  trade-unions? 

56.  4.  Why  limit  by  statute  the  length  of  the  working  day 
(a)  for  women?  (6)  for  children?  (c)  for  men? 

56.  5.  Would  a  universal  eight-hour  day  result  in  lower 
general  wages?  If  not,  why  not?  If  so,  are  there  offsetting 
gains  ? 

56.  6.  Is  a  man  justified  hi  protesting  against  a  limitation 
of  the  working  day  on  the  ground  that  he  has  a  right  to  work  as 
long  as  he  wishes? 

56.  7.  What  conditions  give  rise  to  a  demand  for  minimum 
wage  legislation?  What  results  can  be  obtained  by  such 
legislation  ? 

66.  8.  Explain  wherein  the  problems  would  be  different  in 
fixing  minimum  wages  for  common  unskilled  labor,  for  various 
grades  of  skilled  labor,  and  for  women. 

66.  9.  What  is  to  be  said  for  and  against  a  law  requiring 
that  everyone  who  works  is  to  receive  at  least  a  "living  wage"? 

66. 10.  What  forces  have  been  instrumental  in  bringing 
about  labor  legislation? 

66.  11.    Why  has  the  United  States  been  backward  in  labor 
legislation?    Wherein  are  other  countries  in  advance  of  the 
United  States  in  this  respect? 
i  113 


114     QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

56.  12.  Is  labor  legislation  evidence  that  unrestricted  com- 
petition cannot  be  relied  on  to  secure  the  highest  social  well- 
being? 

Is  there  any  distinction  between  restricting  competition 
and  elevating  the  plane  of  competition? 


SOME  AGENCIES  FOR  INDUSTRIAL  PEACE 

67. 1.  What  different  arrangements  for  profit  sharing  have 
been  employed? 

67.2.  What  are   the  aims  of  profit  sharing?    To  what 
extent  and  for  what  reasons  has  it  accomplished  or  failed  to 
accomplish  these  aims?    What  is  the  prospect  of  its  extensive 
adoption? 

67.  3.  What  conditions  are  favorable,  what  conditions  ad- 
verse, to  the  success  of  profit  sharing? 

67.4.  What  are  the  principal  types  of  "welfare  arrange- 
ments" in  industrial  establishments?    Why  have  they  been 
introduced?    What  do  they  promise? 

57.5.  Explain  the  "sliding  scale."    Under  what  circum- 
stances may  it  be  applied?    What  are  its  elements  of  strength 
and  weakness? 

67.  6.  In  what  various  forms  may  arbitration  be  applied 
in  industrial  disputes?  What  are  the  advantages  and  dis- 
advantages of  each? 

67. 7.  Distinguish  arbitration  and  conciliation.  Under 
what  conditions  is  each  peculiarly  applicable? 

67.  8.  "  Compulsory  arbitration  .  .  .  may  be  the  enter- 
ing wedge  to  socialism."  Under  what  circumstances,  if  at  all, 
and  why  ? 

67.  9.  Is  compulsory  arbitration  in  public  service  indus- 
tries desirable?  Is  it  socialistic? 

67.  10.  What  advantages  to  employers,  employees,  and 
society  at  large  are  offered  by  (a)  profit  sharing?  (b)  "gain 
sharing"?  (c)  "welfare  arrangements"?  (d)  the  sliding  scale? 
(e)  voluntary  arbitration?  (/)  compulsory  arbitration? 

What  is  the  attitude  of  trade-unions  toward  each? 

"5 


WORKMEN'S  INSURANCE.    POOR  LAWS 

68.  1.    What  is  the  nature  of  insurance? 

To  what  extent  does  insurance  tend  to  prevent  the  occur- 
rence of  the  event  insured  against?  May  it  ever  increase  the 
probability  of  such  occurrence? 

58.  2.  What  are  the  main  causes  of  irregularity  in  earn- 
ings? What  is  their  relative  importance? 

68.  3.  If  workmen  universally  insisted  on  higher  rates  of 
pay  in  hazardous  employments,  would  there  be  occasion  for 
compulsory  insurance  against  accidents? 

58.  4.  What  are  the  chief  methods  of  compensating  work- 
men for  industrial  accidents? 

Upon  whom  does  the  burden  of  compensation  ultimately 
fall?  Upon  whom  should  it  fall?  Are  insurance  expenses 
an  element  hi  cost  of  production? 

58.  5.  Is  insurance  against  sickness  as  important  as  in- 
surance against  accidents?  as  feasible?  What  has  been  the 
experience  with  it? 

58.  6.  What  are  the  causes  of  unemployment?  How  far 
is  it  true  that  unemployment  "brings  its  own  remedy"? 

68.  7.  "Unemployment,  though  it  tends  to  correct  itself, 
is  a  continuing  phenomenon."  Explain. 

What  methods  of  provision  for  it  are  hi  use?  What  diffi- 
culties do  they  encounter? 

68.  8.  What  are  the  different  forms  of  provision  for  old 
age?  What  are  the  advantages  and  disadvantages  of  each? 

68.9.  Explain:  "indoor  relief";  "outdoor  relief."  Com- 
pare their  advantages. 

What  are  the  essentials  of  a  satisfactory  system  of  poor 
relief? 

117 


Il8     QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

68. 10.  With  what  force  can  it  be  argued  that  the  follow- 
ing are  deterrents  to  thrift :  (a)  industrial  accident  compensa- 
tion; (6)  compulsory  sickness  insurance;  (c)  unemployment 
insurance ;  (d)  old  age  pensions ;  (e)  poor  relief  ? 


COOPERATION 

69.  1.  What  is  the  essence  of  cooperation?  In  what  lines 
of  economic  activity  has  it  been  tried  ? 

69.  2.  What  form  of  cooperation  is  most  characteristic  of 
England?  of  Germany?  In  which  country  has  there  been  less 
development  and  why? 

59.  3.  What  has  been  the  success  of,  what  is  the  economic 
significance  of,  cooperation  (a)  hi  retail  trading  by  the  well-to- 
do?  (b)  in  retail  trading  by  workingmen?  (c)  hi  agricultural 
operations?  (d)  in  banking? 

59.  4.  What  are  the  causes  of  the  success  of  distributive 
cooperation  in  England?  What  are  the  reasons  for  its  failure 
to  develop  in  the  United  States? 

69.  5.  What  are  the  different  forms  of  credit  cooperation? 
Under  what  conditions  does  the  need  for  it  arise?  What  con- 
ditions are  essential  to  its  success? 

69.  6.  What  is  the  record  of  "cooperation  in  production"? 
What  peculiar  obstacles  does  it  encounter  ?  What  of  its  future  ? 


119 


RAILWAY  PROBLEMS 

60.  1.  In  order  to  be  to  the  public  interest  must  a  railroad 
secure  profits  (a)  from  its  passenger  traffic  ?  (b)  from  its  freight 
traffic?  (c)  from  its  mail  traffic?  (d)  from  the  beginning  of  its 
operation  ? 

60.  2.  What  are  the  important  economic  characteristics  of 
railways? 

60.  3.  In  what  ways  does  the  tendency  to  increasing  returns 
present  itself  in  railway  operation? 

60.  4.  How  does  the  necessity  of  maintaining  a  large  plant 
in  railroading  affect  (a)  the  regularity  of  profits  ?  (b)  the  tendency 
toward  combination?  (c)  costs  of  transportation  with  varying 
volume  of  traffic? 

60.  5.  In  what  ways  do  railroad  operations  illustrate 
production  at  joint  cost?  What  important  consequences  flow 
from  this  characteristic  of  railways? 

60.  6.  In  fixing  railroad  rates,  to  what  extent  should  the 
following  be  considered :  (a)  weight  of  commodity ;  (b)  distance 
transported ;  (c)  separable  expense  of  transportation ;  (d)  value 
of  commodity;  (e)  increase  in  value  due  to  "place  utility"; 
(/)  dividends  on  railroad  stock  ? 

60.  7.  Why  are  railroad  rates  between  two  points  frequently 
different  according  to  the  direction  the  commodities  move  ? 

60.  8.  Should  you  expect  railroad  rates  on  copper  ore  to 
be  higher  or  lower  per  ton  than  on  coal  ? 

Why  does  an  express  company  charge  no  more  for  carrying 
twenty-five  pounds  of  books  than  for  carrying  the  same  distance 
at  the  owner's  risk  twenty-five  pounds  of  table  silver? 

60.  9.  Rates  on  California  lemons  are  made  so  low  that 
they  can  compete  with  lemons  from  Sicily.  Lumber  from 
Oregon  competes  in  Boston  with  lumber  from  Maine.  Does 

121 


122      QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

the  practice  of  quoting  such  rates  benefit  (a)  the  fruit-grower 
and  the  lumberman ?  (b)  the  consumer?  (c)  the  railroad?  (0.) 

60.  10.  What  is  meant  by  "charging  what  the  traffic  will 
bear" ?  To  what  extent,  and  on  what  grounds,  is  it  justifiable? 

60.  11.  To  which  point  in  each  of  the  following  cases  should 
you  expect  the  railroad  rate  from  New  York  City  to  be  lower : 
(a)  San  Francisco  or  Salt  Lake  City;  (b)  Chicago  or  a  small 
town  twenty  miles  east ;  (c)  Chicago  or  New  Orleans ;  (d)  Buf- 
falo, N.Y.,  or  Burlington,  Vt.? 

60.  12.  What  is  the  standard  of  reasonableness  (a)  for  the 
general  level  of  railway  rates?  (b)  for  rates  on  particular  com- 
modities ? 

60.  13.  Does  an  effective  public  prohibition  of  discrimina- 
tion in  rates  and  service  between  large  and  small  shippers  seem 
economically  justifiable  ? 

60.14.  Explain:  "rebates";  "railway  pools."  Why  have 
they  been  prohibited?  Under  what  circumstances,  if  any, 
should  either  be  permitted? 


RAILWAY  PROBLEMS   (Continued) 

61. 1.  "Railways  have  been  the  most  important  agents 
in  increasing  the  disparities  of  wealth  in  modern  times."  In 
what  ways? 

61.  2.  When  may  profits  from  railroading  be  said  to  be 
unearned?  Is  state  appropriation  of  such  unearned  profits 
desirable?  feasible? 

61.  3.  If;  a  railroad  company  regularly  earns  5  per  cent 
on  all  its  outstanding  stock  and  bonds,  can  it  be  said  to  be 
overcapitalized  ?  What  constitutes  overcapitalization  ?  Can 
it  be  prevented  by  law  ? 

61. 4.  What  relation    has    overcapitalization    to   (a)   the 
profits  of  the  company  concerned?  (6)  the  rates  charged  by 
the  company  concerned?  (c)  concentration  of  railroad  owner- 
ship? 

61. 5.  Has   private   ownership   of   the   railroads  justified 
itself  in  the  United  States  ?    Is  its  continuance  imperative  ? 

61.  6.  To  what  extent  is  railway  business  conducted  under 
monopoly  conditions?  Is  competition  tending  to  prevail  less 
or  more  widely? 

61.  7.  "To  charge  what  the  traffic  will  bear  under  the 
principle  of  joint  cost  is  for  the  public  interest;  to  charge 
what  it  will  bear  under  the  principle  of  monopoly  is  against 
the  public  interest."  Explain. 

61.  8.  What  is  the  case  for  and  against  government  owner- 
ship of  railroads  in  the  United  States,  with  respect  to  (a)  rates  ? 
(J)  discrimination?  (c)  finance? 


123 


PUBLIC  OWNERSHIP  AND  PUBLIC  CONTROL 

62.  1.  Enumerate  and  classify  the  principal  public  service 
industries  of  the  present  day. 

62.  2.  Are  the  following  public  service  industries :  (a)  sup- 
plying milk  within  a  city ;  (b)  the  maintenance  of  a  municipal 
sewerage  system;  (c)  jitney  bus  service;  (d)  the  maintenance 
of  emergency  hospitals  ? 

62. 3.  What  are  the  essential  characteristics  of  public 
service  industries? 

62.  4.  What  different  relationships  as  to  ownership,  man- 
agement, and  regulation  may  exist  between  the  government 
and  public  service  industries? 

62.  5.  What  are  the  forces  making  for  monopoly  in  the 
case  of  (a)  the  railroad?  (b)  the  telephone?  (c)  the  post  office? 

62.  6.  For  what  reasons  has  private  management  been  a 
necessary  stage  in  the  development  of  public  service  industries  ? 
In  what  industries  is  this  stage  past  ? 

62.  7.  On  what  terms  should  franchises  be  granted  public 
service  companies? 

62.  8.  If  the  public  buys  a  "public  utility"  from  private 
owners,  what  considerations  should  determine  the  terms  of  the 
purchase  ? 

62.  9.  What  are  the  earmarks  of  an  industry  adapted  for 
public  management,  (a)  according  to  Jevons?  (b)  according  to 
Professor  Taussig  ? 

What  social  and  political  conditions  are  conducive  to  suc- 
cessful public  management  of  industries  possessing  these  ear- 
marks? 

62.  10.  On  what  grounds,  if  any,  may  public  ownership  be 
called  "socialistic"?  "conservative"? 


126     QUESTIONS  ON  THE  PRINCIPLES  OF  ECONOMICS 

62. 11.  What  two  types  of  commission  have  appeared  in 
the  American  states  to  deal  with  public  service  industries? 
What  is  each  capable  of  accomplishing? 

62. 12.  Precisely  what  is  meant  by  "publicity"  as  a  means 
of  regulating  public  service  companies?    In  whose  interests 
may  publicity  be  required  ? 

62.  13.     Upon  what  points  must  public  regulation  focus? 
62. 14.    What  evils  may  result  from  unwise  regulation  of 
public  service  companies  ? 


COMBINATIONS  AND  TRUSTS 

63. 1.  Describe  briefly  the  various  forms  of  industrial 
combination.  Which  now  prevail,  and  why? 

63.  2.  What  has  been  the  status  of  agreements  in  restraint 
of  trade  (a)  under  our  common  law?  (b)  under  the  law  of  Con- 
tinental Europe? 

What  important  alterations  have  been  made  in  the  United 
States  by  statute? 

63.  3.  What  factors  make  for  the  success  of  an  industrial 
combination?  Would  success  prove  it  to  be  economically 
superior?  socially  desirable? 

63. 4.  What  forces   tend   to  bring  industrial  monopoly? 
What  forces  tend  to  re-establish  competitive  conditions  where 
monopoly  has  for  a  time  prevailed? 

63.5.  What  is  "unfair  competition"?  "ruinous  competi- 
tion"?   "cutthroat   competition"?    "potential   competition"? 
By  what  measures,  if  at  all,  may  each  be  diminished? 

63. 6.  If  an   industrial   combination,   selling   its  product 
at  competitive  prices,  secures  large  profits  through  various 
economies,  is  the  combination  socially  objectionable? 

63.  7.  What  influences  may  be  expected  to  temper  the 
policies  of  industrial  combinations  in  the  United  States? 

63. 8.  What  important  advantages  for  the  community 
are  claimed  for  industrial  combination?  To  what  extent 
have  these  been  realized? 

63.  9.  "The  special  question  presented  in  this  regard  by 
the  trust  movement  seems  to  be  whether  large-scale  manage- 
ment adds  something  to  the  gains  from  large-scale  production 
in  the  narrower  sense.  Here,  too,  it  would  appear  at  first  sight 
that  the  matter  may  be  allowed  to  settle  itself.  Let  them  fight 

127 


128      QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

it  out  and  let  that  form  of  organization  survive  which  does  the 
work  most  cheaply." 

Explain :  (a)  the  distinction  between  large-scale  management 
and  large-scale  production;  (b)  what  grounds  there  are  for 
saying  that  they  should  be  allowed  to  fight  it  out,  what  grounds 
for  saying  that  they  should  not;  (c)  what  policies  have  been 
pursued  in  the  United  States  on  this  subject ;  (d)  what  legisla- 
tion has  recently  been  enacted. 

63.  10.  What  are  the  earmarks  of  effective  industrial 
monopoly? 

63. 11.  Should  you  expect  (1)  the  tendency  toward  com- 
bination, (2)  the  tendency  toward  monopoly,  to  be  strengthened, 
or  weakened  by  large  increases  (a)  in  the  savings  of  the  com- 
munity? (6)  hi  general  business  ability?  (c)  in  concentration  of 
control  of  banking  interests? 


SOCIALISM 

64. 1.  What  changes,  if  any,  does  socialism  contemplate 
in  the  following : 

(a)  the  organization  of  production ; 
(6)  the  medium  of  exchange ; 

(c)  sources  of  individual  income ; 

(d)  the  institution  of  private  property ; 

(e)  the  leisure  class ; 

(/)  individual  freedom  of  opportunity ; 

(g)  political  organization ; 

(h)  the  organization  of  the  family ; 

(i)  education; 

(/)  prevailing  religion? 

64. 2.  "To-day  all  over  the  land  masons,   hod-carriers, 
carpenters,  and  so  on  are  building  palaces  which  other  people 
are  to  live  in.     When  socialism  triumphs  all  this  will  be  changed. 
The  worker,  no  longer  robbed  of  the  fruits  of  his  labor,  will  him- 
self occupy  the  palaces  he  builds,  wear  the  broadcloth  he  makes, 
and  eat  the  choice  viands  he  produces." 

Criticize.     (T.) 

64.  3.  Would  there  be  saving  in  a  socialist  state?  Would 
there  be  capital  formation ?  interest?  rent? 

64.  4.  Should  you  regard  it  as  wise  for  a  socialist  state  to 
charge  identical  prices  for  two  articles  produced  with  the  same 
amount  and  quality  of  labor,  and  the  same  amount  and  quality 
of  land,  if  one  required  an  elaborate,  expensive  plant  while  the 
other  required  only  a  simple,  inexpensive  plant  ?  if  the  produc- 
tive processes  differed  greatly  in  length  ? 

64.  5.  What  business  risks,  if  any,  would  be  eliminated 
under  socialism?  What,  if  any,  would  remain? 

64.  6.    In  what  sense,  if  any,  can  it  be  said  that  the  follow- 

K  129 


130     QUESTIONS  ON  THE  PRINCIPLES  OF   ECONOMICS 

ing  are  socialistic:     (a)  public  ownership  and  management  of 
gas  works ;  (6)  public  ownership  and  management  of  railroads ; 

(c)  compulsory  arbitration  between  employers  and  workmen; 

(d)  minimum  wage  legislation;  (e)  unemployment  insurance; 
(/)  a  billion-dollar  trust;  (g)  the  Single  Tax? 

64.  7.  Should  you  apply  the  term  "socialistic"  to  proposals 
which,  though  urged  by  socialists,  tend  to  prevent  the  coming 
of  socialism?  to  proposals  which  tend  toward  socialism,  though 
they  are  not  directly  urged  by  socialists  ? 

64.  8.  Upon  what  several  principles  might  the  wages  of 
different  sorts  of  workers  be  fixed  under  socialism?  Which 
would  be  the  most  practicable? 

64.  9.  In  a  socialist  community  should  you  expect  to  find 
equalizing  differences  in  wages?  real  differences?  What  prin- 
ciples of  justice  would  be  applicable  in  either  case  ? 


SOCIALISM   (Continued) 

65.  1.    Enumerate  the  important  difficulties  which  socialism 
would  encounter.    Number  them  in  what  seems  to  you  to  be 
the  order  of  their  importance. 

66.  2.     Would  the  pressure  of  population  be  greater  or  less 
under  socialism?    What  bearing  would  this  have  upon  the 
policy  and  permanence  of  the  socialist  state? 

65.  3.  What  grounds  are  there  for  saying  that  under  a 
socialistic  regime  the  efficiency  of  the  rank  and  file  of  workers 
would  be  greater?  less? 

65.  4.    What  is  the  outlook  for  effective  leadership  under 
socialism  ? 

66.  5.     Socialism  is  sometimes  described  as  "against  human 
nature."    To  what  aspects  of  human  nature  does  this  criticism 
refer?    Is  the  point  well  taken? 

65.  6.  Should  the  goal  of  economic  progress  be  primarily 
a  better  distribution  or  a  larger  production?  May  either  be 
safely  neglected?  Which  is  emphasized  by  socialism? 

Does  a  larger  production  tend  to  promote  better  distribu- 
tion? Does  a  better  distribution  tend  to  promote  larger 
production  ? 

65.  7.  What  are  the  prospects  for  the  early  adoption  of 
socialism?  for  its  ultimate  adoption? 


131 


SOME  PRINCIPLES  UNDERLYING  TAXATION 

66. 1.  Classify  the  different  sorts  of  payments  to  govern- 
ments.   Of  which  variety  is  each  of  the  following :   (a)  charges 
for  marriage  licenses;    (b)  water  rates;    (c)  fares  paid  on  a 
government  railroad;    (d)  duties  imposed  upon  estates  passing 
by  bequest ;  (e)  assessments  for  sidewalks  levied  upon  owners  of 
abutting  lots? 

Define  a  "tax." 

66. 2.  Define   proportional,    progressive,    degressive,    and 
regressive  taxation,  and  illustrate  each  by  hypothetical  income 
tax  rates. 

Is  an  import  duty  of  2£  per  pound  on  sugar  a  proportional 
tax? 

66.  3.  What  are  the  different  theories  regarding  the  best 
mode  of  apportioning  taxes  ?  " 

To  which  sort  of  taxation  (proportional,  progressive,  or 
regressive)  does  each  of  these  theories  lead? 

66.4.  Distinguish  "funded  incomes"  and  "unfunded  in- 
comes." What  reasons  can  be  urged  for  and  against  heavier 
taxation  of  funded  incomes? 

66.  5.  Should  taxation  be  used  as  an  instrument  for  (a)  ap- 
propriating illegitimate  incomes?  (b)  restricting  undesirable 
business  practices?  (c)  absorbing  monopoly  profits?  (d)  reducing 
inequalities  of  wealth? 

For  what  other  objects  may  taxation  be  employed? 


INCOME  AND  INHERITANCE  TAXES 

67.  1.  Compare  inheritance  taxes  and  income  taxes  with 
respect  to  (a)  ease  of  collection,  (b)  advisability  of  progressive 
rates,  (c)  equality  of  burden  upon  persons  in  like  circumstances, 
(d)  fitness  for  frequent  readjustment  of  rates. 

67. 2.  Can  one  who  opposes  progressive  taxation  con- 
sistently support  a  progressive  income  tax? 

67.  3.  Is  it  advisable  to  exempt  the  poorer  classes  (a)  from 
all  taxes?  (b)  from  all  direct  taxes?  (c)  from  taxes  on  incomes? 

67.  4.  What  are  the  two  common  methods  of  levying  in- 
come taxes?  Wherein  is  each  advantageous?  disadvantageous? 

67.  5.  "The  principle  of  stoppage  at  the  source  is  not  con- 
sistent with  progression."  Explain.  By  what  device  is  pro- 
gression in  income  taxes  secured  despite  this  fact  ? 

67.  6.  What  is  the  history  and  present  status  of  income 
taxes  in  the  United  States? 

67.  7.  What  are  the  principal  features  of  the  Federal  in- 
come tax  act  of  1913  ? 


TAXES  ON  LAND  AND  BUILDINGS 

68. 1.  Trace  the  evolution  of  taxes  upon  real  property. 
Why  have  they  come  to  their  present  importance  in  financial 
legislation  ? 

68.  2.  Who  bears  the  burden  of  a  tax  (a)  on  land  apart 
from  the  improvements  upon  it  ?  (6)  on  buildings  per  se  ? 

What  underlying  difference  between  land  and  buildings  is 
responsible  for  the  difference  of  incidence?  How  may  the 
shifting  take  place? 

68.  3.  Under  what  conditions  is  a  tax  on  rented  buildings 
borne  by  (a)  the  tenant?  (£>)  the  owner?  (c)  neither? 

68.  4.  How  far  is  it  true  that  a  tax  upon  land  is  a  "burden- 
less  tax"?  Can  the  same  be  said  of  a  tax  upon  real  estate? 

68.  5.  In  what  respects  do  different  results  follow  according 
as  real  estate  taxes  are  (a)  imposed  on  owner  or  occupier? 
(6)  assessed  on  rental  or  capital  value  ? 

68.  6.  Are  working  men  taxed  by  real  estate  taxes  affecting 
their  dwellings? 

What  difference  does  it  make  whether  they  or  their  land- 
lords are  assessed  for  such  taxes? 

68.  7.  To  what  extent  have  taxes  on  real  property  been 
relegated  to  local  governing  bodies?  What  are  the  reasons  for 
this  policy  ?  Is  it  wise  ? 


»*7 


THE  GENERAL  PROPERTY  TAX 

69.  1.  Why  was  the  general  property  tax  a  satisfactory 
tax  under  simple  industrial  conditions?  Why  has  it  become 
"  hopelessly  impracticable  "  ? 

69.  2.  What  results  usually  follow  from  attempts  rigidly 
to  enforce  the  general  property  tax? 

Explain  and  criticize  the  statement:  "The  general  property 
tax  works  best  where  the  letter  of  the  law  is  disregarded." 

69.  3.  Is  a  rate  of  $20  in  the  $1000  more  burdensome  when 
imposed  upon  stocks  and  bonds  than  when  levied  upon  real 
estate?  Why  or  why  not? 

What  peculiar  importance  is  involved  in  the  selection  of  the 
rate  of  taxation  on  stocks  and  bonds? 

69.4.  What  is  "double  taxation"?  Under  what  cir- 
cumstances, if  any,  is  it  unobjectionable  ?  Why  is  the  problem 
a  serious  one  to-day  in  the  United  States?  What  solution  can 
be  suggested? 

69.  5.  Is  it  expedient  to  exempt  public  securities  from 
taxation  ? 

69.  6.  What  changes  have  been  suggested  for  improving 
American  taxation  of  securities?  What  is  to  be  said  for  and 
against  each? 

69.  7.  What  would  be  the  probable  consequences  of  (a)  a 
general  tax  on  wages?  (6)  an  all-embracing  tax  on  property? 


139 


TAXES  ON  COMMODITIES 

70.  1.     Distinguish  "direct"  and  "indirect"  taxes. 

70.  2.  What  are  the  advantages  of  indirect  taxes?  Are 
there  offsetting  disadvantages? 

70.  3.  To  what  extent  and  by  what  process  is  a  tax  shifted 
to  consumers  when  levied  upon  a  commodity  produced  (a)  at 
constant  cost?  (b)  at  decreasing  cost?  (c)  at  increasing  cost? 
(d)  by  a  monopoly? 

70. 4.  Distinguish  excise  taxes  and  customs  duties.  Is 
their  operation  proportional,  progressive,  or  regressive? 

What  are  their  relative  merits  for  purposes  of  revenue? 
Should  a  large  or  a  small  list  of  articles  be  selected  for  either 
form  of  taxation? 

70.  5.  What  are  fiscal  monopolies  ?  Cite  examples.  Are 
they  desirable  sources  of  public  revenue  ? 


Printed  in  the  United  States  of  America. 


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